What Is The Stretch IRA?
If a non-spouse inherits a IRA account, they will be able to retitle the account as a Beneficiary IRA account. The beneficiary is required to take money out of the account each year. This is known as the "stretch-out" provision. As a general rule, after the IRA owner dies, the beneficiary can withdraw the monies over his or her remaining life expectancy.
Any of your IRA accounts will have this feature as long as they have a designated beneficiary. This is great way to continue tax deferral but is only available on IRA accounts- 401k's, 403b and other employer qualified plans don't provide this. Normally if a non-spouse (brother, sister, son or daughter) inherits these employer plans, distributions will come out of the plan and be fully taxable. It generally makes sense to rollover your company plans into the IRA and make sure your beneficiaries are updated to take advantage of the stretch-out. Here's more information from Kiplingers.
Wise Owl
Looks like the Pension Protection Act that was recently signed will allow non-spouse beneficiaries to transfer the money to a Beneficiary IRA account. This is a new feature for 401k plans and other employer sponsored accounts and will start in 2007.
YahooFinance provides an update.
In contrast, under the old rules -- in effect until 2007 -- nonspousal inheritors usually had to empty the nest egg all at once. That meant they would lose a huge chunk of the original 401(k) to the tax collector in a single bite. And that would commonly have to happen in the year following the death of the original account's owner. As a practical matter, that was often within months.