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Stretch That IRA – An Example
By JLP | 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- Only the RMD is withdrawn each year.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 |
Account |
RMD |
10% |
Life |
|
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.
Topics: IRAs | 1 Comment »
September 23rd, 2005 at 2:57 pm
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.