A stretch IRA refers to an individual retirement account that is inherited by a beneficiary who is eligible to take the required minimum distributions from the account over the beneficiary's own life expectancy. This includes any type of individual beneficiary such as children, grandchildren, nieces, nephews, even friends, but not charitable beneficiaries since they do not have a life expectancy. It also does not apply to surviving spouses, who can simply elect to take an IRA inherited from a deceased spouse and roll it over into their own IRA.
Benefits of a Stretch IRA
The advantage of stretch IRAs from an estate planning perspective is that if a grandparent leaves the IRA to a grandchild or grandchildren, then the IRA can continue to grow tax-free for the benefit of the grandchildren since the grandchild's life expectancy will require the grandchild to withdraw relatively small required minimum distributions over many years leaving the principal and much of the tax-free growth inside the IRA.