Stretch That IRA – An Example

September 11, 2005

Here’s an example of what a stretch IRA looks like.

Last week, I talked about how to calculate the Required Minimum Distribution on an inherited IRA. This week I want to show you even a small IRA can mean millions of dollars in additional income to a beneficiary.

For this example, I used the following inputs:

  • Child is 10 years old when they inherit the $10,000 Roth IRA.
  • Only the RMD is withdrawn each year.
  • The rate of return is 10%. NOTE: This is an average rate of return, reflective of the performance of the Dow Jones Industrial average over the last 70+ years. Past results do not predict future performance.

  • Age

    Life
    Exp

    Account
    Value

    RMD

    10%
    Growth

    Life
    Ending
    Balance

    10

    72.8

    $10,000

    $-137

    $986

    10,849

    11

    71.8

    $10,849

    $-151

    $1,070

    11,768

    12

    70.8

    $11,768

    $-166

    $1,160

    $12,762

    13

    69.8

    $12,762

    $-183

    $1,258

    $13,837

    14

    68.8

    $13,837

    $-201

    $1,364

    $14,999

    15

    67.8

    $14,999

    $-221

    $1,478

    $16,256

    16

    66.8

    $16,256

    $-243

    $1,601

    $17,613

    17

    65.8

    $17,613

    $-268

    $1,735

    $19,080

    18

    64.8

    $19,080

    $-294

    $1,879

    $20,664

    19

    63.8

    $20,664

    $-324

    $2,034

    $22,375

    20

    62.8

    $22,375

    $-356

    $2,202

    $24,220

    21

    61.8

    $24,220

    $-392

    $2,383

    $26,211

    22

    60.8

    $26,211

    $-431

    $2,578

    $28,358

    23

    59.8

    $28,358

    $-474

    $2,788

    $30,672

    24

    58.8

    $30,672

    $-522

    $3,015

    $33,166

    25

    57.8

    $33,166

    $-574

    $3,259

    $35,851

    26

    56.8

    $35,851

    $-631

    $3,522

    $38,742

    27

    55.8

    $38,742

    $-694

    $3,805

    $41,852

    28

    54.8

    $41,852

    $-764

    $4,109

    $45,197

    29

    53.8

    $45,197

    $-840

    $4,436

    $48,793

    30

    52.8

    $48,793

    $-924

    $4,787

    $52,656

    31

    51.8

    $52,656

    $-1,017

    $5,164

    $56,803

    32

    50.8

    $56,803

    $-1,118

    $5,568

    $61,253

    33

    49.8

    $61,253

    $-1,230

    $6,002

    $66,026

    34

    48.8

    $66,026

    $-1,353

    $6,467

    $71,140

    35

    47.8

    $71,140

    $-1,488

    $6,965

    $76,617

    36

    46.8

    $76,617

    $-1,637

    $7,498

    $82,478

    37

    45.8

    $82,478

    $-1,801

    $8,068

    $88,745

    38

    44.8

    $88,745

    $-1,981

    $8,676

    $95,440

    39

    43.8

    $95,440

    $-2,179

    $9,326

    $102,587

    40

    42.8

    $102,587

    $-2,397

    $10,019

    $110,209

    41

    41.8

    $110,209

    $-2,637

    $10,757

    $118,330

    42

    40.8

    $118,330

    $-2,900

    $11,543

    $126,973

    43

    39.8

    $126,973

    $-3,190

    $12,378

    $136,161

    44

    38.8

    $136,161

    $-3,509

    $13,265

    $145,916

    45

    37.8

    $145,916

    $-3,860

    $14,206

    $156,262

    46

    36.8

    $156,262

    $-4,246

    $15,202

    $167,217

    47

    35.8

    $167,217

    $-4,671

    $16,255

    $178,801

    48

    34.8

    $178,801

    $-5,138

    $17,366

    $191,029

    49

    33.8

    $191,029

    $-5,652

    $18,538

    $203,915

    50

    32.8

    $203,915

    $-6,217

    $19,770

    $217,468

    51

    31.8

    $217,468

    $-6,829

    $21,063

    $231,693

    52

    30.8

    $231,693

    $-7,522

    $22,417

    $246,587

    53

    29.8

    $246,587

    $-8,275

    $23,831

    $262,144

    54

    28.8

    $262,144

    $-9,102

    $25,304

    $278,346

    55

    27.8

    $278,346

    $-10,012

    $26,833

    $295,166

    56

    26.8

    $295,166

    $-11,014

    $28,415

    $312,568

    58

    24.8

    $330,498

    $-13,327

    $31,717

    $348,889

    59

    23.8

    $348,889

    $-14,659

    $33,423

    $367,653

    60

    22.8

    $367,653

    $-16,125

    $35,153

    $386,680

    61

    21.8

    $386,680

    $-17,738

    $36,894

    $405,837

    62

    20.8

    $405,837

    $-19,511

    $38,633

    $424,958

    63

    19.8

    $424,958

    $-21,463

    $40,350

    $443,845

    64

    18.8

    $443,845

    $-23,609

    $42,024

    $462,260

    65

    17.8

    $462,260

    $-25,970

    $43,629

    $479,919

    66

    16.8

    $479,919

    $-28,567

    $45,135

    $496,488

    67

    15.8

    $496,488

    $-31,423

    $46,506

    $511,571

    68

    14.8

    $511,571

    $-34,566

    $47,701

    $524,706

    69

    13.8

    $524,706

    $-38,022

    $48,668

    $535,352

    70

    12.8

    $535,352

    $-41,824

    $49,353

    $542,881

    71

    11.8

    $542,881

    $-46,007

    $49,687

    $564,561

    72

    10.8

    $564,561

    $-50,608

    $49,565

    $545,549

    73

    9.8

    $545,549

    $-55,668

    $48,988

    $538,869

    74

    8.8

    $538,869

    $-61,235

    $47,763

    $525,397

    75

    7.8

    $525,397

    $-67,359

    $45,804

    $503,842

    76

    6.8

    $503,842

    $-74,094

    $42,975

    $472,723

    77

    5.8

    $472,723

    $-81,504

    $39,122

    $430,341

    78

    4.8

    $430,341

    $-89,654

    $34,069

    $374,755

    79

    3.8

    $374,755

    $-98,620

    $27,614

    $303,749

    80

    2.8

    $303,749

    $-108,482

    $19,527

    $214,794

    81

    1.8

    $214,794

    $-119,330

    $9,546

    $105,010

    82

    .8

    $105,010

    $105,010

    $0

    $0

    83

    0

    $0

    $0

    $0

    $0

    I don’t know about you, but I think this is an awesome tool for passing on even a small amount of money. It makes much more sense than simply passing on $10,000. Of course, there’s no guarantee that the beneficiary will withdraw only the RMD. Withdrawing more than the RMD would drastically change the outcome of this example.

One response to Stretch That IRA – An Example

  1. The results are even more incredible if you take the RMD at the end of the year, after it also has earned that 10% rate of return, rather than at the beginning of the year as done in the table. My spreadsheet shows that the account balance maxes out at $657,000 at age 73 instead of $564,000 at age 72, and the total distributions are $1,799,629 instead of $1,416,266.