Who should benefit from your retirement assets -- you and your family or the federal tax coffers? The answer is easy: you and your family, of course. Achieving that goal is more difficult.

These days, very few people stay at one job for their entire careers. So, by retirement, you and your spouse may have assets in four or five -- or even more -- employer-sponsored retirement plans and individual retirement accounts (IRAs). How you coordinate those accounts at retirement can make a big difference in the amount of assets available to pass on to the children or other heirs.

The tax bite

First, there's income tax. You'll have to pay federal income tax plus state income tax, if applicable, on the plan distributions you receive during your lifetime. Any remaining tax-deferred contributions and account earning distributed to your family after your death also will be subject to income tax. At present, federal income-tax rates range from 15 percent to 39.1 percent.

Then, there's estate tax. Depending on the size of your estate, your plan assets may be subject to estate tax at rates as high as 55 percent. And, if you leave the assets to grandchildren, your estate may have to pay a 55 percent generation-skipping transfer tax as well. In a worst-case scenario, your retirement assets could be reduced by as much as 80 percent before your heirs get to enjoy them.

Stretching assets

One way to reduce taxes and leave more of your assets to your family is to use IRAs to "stretch" your assets. To illustrate: Alice, age 60, is ready to retire. She has $300,000 of retirement assets in three employer-sponsored retirement plans and two IRAs. Two of the accounts were inherited from her deceased husband. She would like to leave some of the assets to her favorite charity and the rest to her two children, Sue and Bob.

Here's how Alice can use a stretch IRA strategy in her estate planning. When she retires, Alice rolls over her retirement plan benefits into traditional IRAs, consolidating her assets so that she has three IRAs of $100,000 each.

As long as she has the plan trustees transfer the assets directly into the new IRAs, there won't be any tax consequences. She names Sue beneficiary of the first IRA, Bob beneficiary of the second IRA, and the charity as beneficiary of the third IRA.

Alice decides to postpone distribution from the accounts and let all three IRAs continue to grow tax deferred until she reaches 70. Tax law requires IRA owners to begin receiving minimum distributions based on life expectancy by April 1 of the year after they turn age 70. By the time Alice begins distributions, the IRAs have each grown to $250,000.

Based on her life expectancy, taken from IRS tables, Alice would have to withdraw a total of about $36,000 a year from the three IRAs. However, for two of the IRAs, Alice can base the distributions on her and her child's joint life expectancy by using the uniform distribution table.

After Alice's death, her children must continue to receive annual distributions from the IRAs based on their individual life expectancy. They'll have to pay income tax on the payments. But the taxes will be spread out over the years the payments are received.

The charity, on the other hand, can withdraw all of the assets from its IRA without paying any income tax. Many charities are tax exempt and thus don't have to pay income tax on distributions received from a donor's retirement plan.

Other benefits

Stretching assets isn't the only benefit offered by this planning strategy. Alice's estate can claim a charitable deduction from the full fair market value of the IRA assets the charity receives, eliminating federal estate tax on the assets. In addition, Sue and Bob can claim an income-tax deduction for any estate tax paid on the IRA assets they receive.

Insurance may be a better way to handle any estate tax on Sue's and Bob's IRAs, though. When Alice creates the stretch IRAs, she also could set up an irrevocable life insurance trust benefiting her children. The trustee would purchase insurance on Alice's life in an amount that would cover any potential estate tax and, if Alice chooses, replace the assets she's leaving to charity.

As long as Alice retains no incidents of ownership in the insurance policy, the proceeds won't be included in her taxable estate. Nor will Sue and Bob have to pay income tax on the insurance proceeds. Sue and Bob effectively would receive all of Alice's IRA assets - with the bonus of receiving some of the assets income-tax free.

Are stretch IRAs the right strategy for you? It depends on your and your family's personal financial situation. Your professional advisor can help you make the decision.

Michael L. Parker, CFP, is a Certified Financial Planner practitioner in Sikeston with securities and advisory services offered through Lincoln Financial Advisors. He is a broker/dealer and Registered Investment Advisor. (mparker50@aol.com)