Can you Stretch?

Quote of the Week

“In life, you only get to have one reputation. – Larry Lof

Technical Corner

So far, the markets are off to a good start this year. Our re-allocation last week is taking advantage of the “good mood” on Wall Street. The problem I see going forward is that the economy is still slowing and corporate profits are still falling.

We are only a week or so into the corporate earnings season. So far S&P 500 aggregate earnings have slowed down to -8% year-over-year growth. Only 17 of the S&P 500’s companies have reported earnings.

The “Trade Deal” was signed, but it really didn’t do anything but stop the escalation of the damage. Almost all of the tariffs are still in place and the word is that there won’t be a Phase II until after the election. As a result of the “Trade Deal,” Wall Street is projecting S&P 500 earnings to be +3%, then +4.4%, and straight up to a massively huge +13.9% year-over-year.

Mathematically speaking, how do corporate earnings re-accelerate when headline CPI has increased to a 15 month high of +2.3% year-over-year and labor costs have accelerated to classic Late Cycle highs? If you have any ideas on how that is going to happen, please let me know. I’m not predicting, but this smells a lot like 1999.

The big “tell” will be on January 30th when the fourth quarter GDP numbers are reported.

Larry’s Thoughts

I have been a member of the Ed Slott IRA Group for over 20 years. Ed Slott has been invaluable as a source where I receive and can find up-to-date IRA knowledge.

The Congress and the President recently signed new legislation called the SECURE Act. Many of the provisions of the Act are positive for individuals to put more money away for retirement. However, one provision of the Act is the removal of the lifetime stretch for non-spousal beneficiaries. Before the Act, a non-spousal beneficiary could stretch the payments over their life expectancy. So if a child of a deceased IRA owner were to inherit a parent’s IRA, they could stretch the payments over their life expectancy. Now, the limit is 10 years, so the IRA must be liquidated before the end of the 10 year period.

The lifetime IRA stretch was a valuable tool in the planning of tax-deferred income for non-spousal beneficiaries. What has been lost is the tax-deferral of the IRA over extended periods of time.

The following article by Ed Slott gives you the new rules for IRA stretches for non-spousal beneficiaries.

The Stretch IRA is Dead

 The stretch IRA era is over.

The SECURE Act is the law for 2020 and beyond. Advisers are already scurrying to explain the retirement rule changes to clients, especially those with large IRAs who had planned on a stretch IRA for their heirs. We are receiving an avalanche of questions on exactly how and when this major change will be applied.

The SECURE Act ends the stretch IRA. All of those plans have to be reviewed and probably revised. Under the now “old rules” (before 2020), an individual designated beneficiary could extend post-death “stretch IRA” required minimum distributions over his lifetime. A young grandchild might have a 70-year payout period. But no more. The SECURE Act eliminates the stretch IRA and replaces it with a 10-year payout for most beneficiaries.

The clients most affected are those with the largest IRAs who had planned on leaving the lion’s share of those accounts to extend over the lives of their children and grandchildren. This especially includes any clients who named a trust as their IRA beneficiary. These trusts will not work well under the new rules. These estate plans need to be readdressed immediately.

  1. Are current stretch IRAs for those who died before 2020 still good? Yes, they are grandfathered, but only until the beneficiary dies, so payouts to the successor beneficiary (the beneficiary’s beneficiary) will be limited to 10 years.


An IRA owner died in 2019 and left his IRA to his grandchild. The grandchild’s stretch period is 60 years. That schedule is grandfathered and remains the same. When the grandchild dies, though, any funds remaining in the inherited IRA that go to the grandchild’s beneficiary (the successor beneficiary) will have to be paid out within 10 years. The successor beneficiary is not grandfathered.

  1. Does this kill stretch IRAs for all beneficiaries? No. The law carves out exemptions for certain beneficiaries now called eligible designated beneficiaries, or EDBs. Eligible designated beneficiaries are:
  • Surviving spouses.
  • Minor children, up to majority – but not grandchildren.
  • Disabled individuals – under the strict IRS rules.
  • Chronically ill individuals.
  • Individuals not more than 10 years younger than the IRA owner (generally, siblings around the same age).

The old stretch rules still apply to these beneficiaries, the same as before, but only while the beneficiaries still qualify as EDBs.


An IRA owner dies in 2020 and leaves his IRA to his minor child. The minor child can still stretch the same as before, but only until that child reaches the age of majority (which is age 18 for most states). Once the child reaches majority, he is no longer an EDB, and then is subject to the new 10-year rule.

  1. Do grandchildren qualify as minors for the EDB exemption? No. The law is clear on this. The EDB exemption from the 10-year rule is only for the child of the IRA owner or plan participant.


An IRA owner dies in 2020 and leave her IRA to her grandchild. The grandchild, no matter what age, will be subject to the 10-year payout after death, unless that grandchild qualifies as disabled or chronically ill. It’s likely that a trust was named for that grandchild. That trust too, is subject to the 10-year rule. That’s probably not what the client wanted. The reason she named a trust was to protect those funds for the grandchild. Certain trusts may still do this but they would all still be limited to a 10-year payout.

  1. How do the RMDs work under the 10-year rule? Are there RMDs during the 10 years? No. Under the 10-year rule, there are no RMDs during the 10 years. Instead, the entire IRA balance must be emptied by the end of the 10 years. Beneficiaries can withdraw any amounts they wish over the 10 years, so beneficiaries do have some planning flexibility during the 10 years to withdraw funds when it best fits their tax situation during that time.
  2. Do Roth IRAs still qualify for the stretch? No. Inherited Roth IRAs are subject to the same 10-year payout rule, except that the distributions will generally be tax-free. Advisers will want to look at doing more Roth conversionsto eliminate what could be a big tax bill within 10 years after death.

Slott, Ed. “The stretch IRA is dead.” Accessed 21 January 2020

If you have friends or family in need of financial life planning services,

It would be the honor of Laurence Lof Financial Advisors to assist them.

We value your referrals!

These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.

The S&P 500 index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.

Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Laurence Lof Financial Advisors, LLC are not affiliated. Laurence Lof Financial Advisors 4757 E Camp Lowell Drive Tucson AZ 85712

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