The term “stretch IRA” has become a popular way to refer to an IRA (either traditional or Roth) that has provisions that make it easier to “stretch out” the time that funds can stay in the IRA after the death of the owner. A stretch IRA is not a special type of IRA under the Internal Revenue Code. It’s just a traditional IRA or Roth IRA that has language (in the custodial or trust document that governs the IRA) giving a beneficiary (and backup contingent beneficiaries) the option to take distributions from an inherited IRA over the beneficiary’s life expectancy.
This language also generally allows successor beneficiaries to be named, facilitating the continued tax-deferred growth of the IRA over (possibly) more than one generation. There’s nothing really dramatic about this “stretch” language; any IRA provider can include it. The fact is, though, many don’t. Absent the “stretch” language, IRA funds might have to be distributed on a more aggressive basis upon the death of the IRA owner or the original beneficiary.
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Posted by Michael Chapman at 12:00 PM PDT
Before you retire, take the time to figure out just how much money you’ll need for retirement (see Preretirement). One of the biggest concerns for retirees is whether their retirement savings will last the rest of their lives–will they run out of money? Social Security is not the guaranteed source of retirement income it once was, and people generally don’t want to depend on public assistance or their children during their retirement years. Whether you might run out of money hinges upon several factors; how much money you’ve saved, how long you need your savings to last, and how quickly you spend your money, to name a few. You’ll be better off if you can tackle these issues before retirement by maximizing your retirement nest egg. But, if you are entering retirement and you still have concerns about making your savings last, there are several steps you can take even at this late date. The following are tips and ideas to help make sure you don’t outlive your money.
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Posted by Michael Chapman at 12:00 PM PDT
A bonus is an addition to regular salary or compensation that enables employees to share in profits resulting from a successful year. Bonuses are often used for executives as an incentive-oriented form of compensation, based on the attainment of profit or other goals during the year. Bonuses are sometimes used to assist executives in funding their share of the premium to a split dollar life insurance plan.
Example(s): XYZ Corporation expected each of its sales executives to bring in $100,000 worth of new business in Year 1. Any executive exceeding this goal in Year 1 would be given a bonus on January 1 of Year 2 in an amount equal to 10 percent of his or her new business in excess of $100,000. Because Joe brought in an extra $50,000 worth of business, he received a $5,000 bonus check on January 1, Year 2.
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Posted by Michael Chapman at 12:00 PM PDT
Golden parachutes are severance and other compensation agreements that protect key employees from the effects of a corporate takeover or change in control. Payments under golden parachutes are triggered by a change in ownership or control of the corporation. They provide key employees, whose employment is often terminated as a result of a takeover or change in control, with either continued compensation for a specified period following their departure, or a lump-sum payment, or some other negotiated benefit.
Although golden parachute payments are deductible by corporations if the payments are reasonable, Internal Revenue Code Section 280G provides that no deduction will be allowed to an employer for any “excess parachute payment.” In addition, IRC Section 4999 imposes a 20 percent excise tax on the recipient of any excess parachute payment.
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Posted by Michael Chapman at 1:00 PM PDT
