The Benefits of a Stretch IRA for Generational Wealth

18 March 2025

Imagine passing down a financial legacy that continues to grow even after you're gone. Sounds like something out of a dream, right? Well, a Stretch IRA can make that dream a reality. This lesser-known financial strategy can be a game-changer when it comes to building multi-generational wealth.

But here's the catch—this once-powerful tool has seen major changes in recent years. So, does it still pack a punch? And can it still help secure your family's financial future?

Stick with me, and we’ll uncover the mystery behind the Stretch IRA, how it works, why it was so beneficial, and what alternatives exist today.

What Is a Stretch IRA?

A Stretch IRA isn’t an official type of IRA—it’s a strategy. It allowed beneficiaries (like your children or even grandchildren) to "stretch" required minimum distributions (RMDs) over their lifetime.

Before the SECURE Act of 2019, beneficiaries could withdraw only small amounts each year, leaving the bulk of the IRA funds to continue growing tax-deferred for decades. If done right, this could leave millions to heirs.

However, the SECURE Act changed the rules, limiting the ability to stretch distributions over a lifetime for most non-spouse beneficiaries. But does that mean the strategy is dead? Not necessarily.

How the Stretch IRA Was a Wealth-Building Powerhouse

Before the SECURE Act, here’s how a Stretch IRA worked:

1. You Open an IRA – This could be a traditional or Roth IRA.
2. You Name a Beneficiary – Someone younger, like your child or grandchild.
3. They Inherit the IRA – After your passing, the beneficiary only had to take small required distributions based on their life expectancy.
4. The Rest Continues to Grow – Because withdrawals were minimal, the untouched money could compound exponentially, creating a long-term financial windfall.

Picture this: A grandparent leaves a $500,000 IRA to their 20-year-old grandson. Under the old rules, the grandson could take tiny distributions while letting the bulk of the money grow tax-free for 50+ years. By the time they retired? That initial inheritance could be worth millions.

This was the magic of the Stretch IRA—but then the rules changed.

The SECURE Act and the End of the Traditional Stretch IRA

In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act disrupted this strategy. Under the new rules:

- Most non-spouse beneficiaries must withdraw the entire IRA balance within 10 years.
- No more lifetime distributions for most heirs—meaning less time for money to grow tax-deferred.

With the traditional Stretch IRA strategy gone, many believed generational wealth had lost a key advantage. But hold on—there are still workarounds.

Alternative Strategies to Keep Your Legacy Growing

The end of the traditional Stretch IRA doesn’t mean the end of smart estate planning. Here are some alternative wealth-preserving strategies to consider:

1. Roth Conversions: The Tax-Free Inheritance Play

A strategic Roth conversion can be a powerful move. By converting a traditional IRA into a Roth, heirs won’t owe taxes on withdrawals.

Yes, you’ll pay taxes upfront, but here’s why it makes sense:

✅ Roth IRAs have NO required minimum distributions (RMDs) during your lifetime
✅ Your heirs inherit tax-free money
✅ 10 years of tax-free growth before they must withdraw the balance

If you’re playing the long game, this could be a huge win for generational wealth.

2. Life Insurance as a Wealth-Transfer Tool

Think of permanent life insurance as a tax-free inheritance machine. Unlike IRAs, the payout from a life insurance policy isn’t taxed and doesn’t come with withdrawal rules.

✅ Guaranteed, tax-free payout to heirs
✅ No SECURE Act restrictions
✅ Can be used to cover estate taxes for ultra-high-net-worth families

For those looking to replace the benefits of the Stretch IRA, a well-structured life insurance plan could be the answer.

3. Charitable Remainder Trusts (CRTs): The Hidden Gem

A Charitable Remainder Trust (CRT) can act like a Stretch IRA by providing lifetime income to beneficiaries while reducing taxes. Here’s how it works:

1. You place IRA assets into a CRT.
2. The trust provides annual income to heirs, similar to the old Stretch IRA.
3. After a set period (or upon the heir’s passing), the remaining balance goes to charity.

This strategy keeps your money working for loved ones without succumbing to SECURE Act withdrawal rules.

4. Accumulation Trusts: A Control Mechanism for Heirs

If you’re worried about heirs blowing their inheritance, an Accumulation Trust may help. Instead of giving them direct access, the trust holds IRA distributions and releases funds strategically.

✅ Protects assets from reckless spending
✅ Limits taxation by distributing funds over time
✅ Keeps legacy wealth intact

For families who want stronger control over wealth transfer, this can be a strategic alternative.

The Bottom Line: Is the Stretch IRA Still Worth Considering?

While the traditional Stretch IRA strategy is no longer what it used to be, that doesn’t mean generational wealth planning is dead.

Smart investors are adapting by turning to Roth conversions, life insurance, trusts, and other estate planning tools to keep their financial legacies alive.

If you’re serious about leaving your family a lasting financial advantage, planning is key. Meet with a financial advisor to create a custom strategy that works best for your situation.

Because at the end of the day, generational wealth isn’t just about money—it’s about ensuring the people you love are financially secure for decades to come.