Significance

• A person who opens an IRA is allowed to let assets accumulate in the account, tax-free, throughout his lifetime. But if you are an IRA beneficiary who opts to open a stretch IRA, the IRS limits your benefits by prohibiting you from making contributions and requiring you to begin taking RMDs the year following the original owner's death.
  
  

Function

• To determine your annual RMD, find out how much your IRA was worth on Dec. 31 the previous year. Your IRA custodian should send you a statement that includes that information. Look up your life expectancy in IRS Publication 590. Divide the IRA's worth by your life expectancy; the result is your RMD. If you fail to take an RMD, the IRS imposes a 50 percent penalty on the amount you should have withdrawn.
  
  

Benefits

• Though you must take distributions and cannot contribute to a stretch IRA, you are allowed to continue directing the account's assets in any way you wish. If your life expectancy is relatively high and your assets continue to grow, you can continue to to draw from a stretch IRA for many years before emptying it.