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Pension Protection Act of 2006: Impact on Estate Planning

01-01-2006 - The Pension Protection Act of 2006 gives non-spouse beneficiaries of 401(k) and 403(b) plans the ability to stretch out their withdrawals over their actuarial lifetimes, just as non-spouse beneficiaries of IRAs may do. These staggered withdrawals can provide a consistent income stream, as well as minimize the income tax impact on your heirs. But unlike an IRA, a 401(k)or 403(b)can be stretched out only if the specific plan permits it. Many plans, in an effort to limit their financial liability, still require withdrawals to be completed within a five year period.

If you have a 401(k) or 403(b) that you would like to leave to your children as a "stretch out," consult your plan's administrator to see if the five-year rule can be waived. If not, you may want to investigate converting your plan into an IRA.

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