The Beauty of the Stretch IRA - An Example

The other day, I talked about Stretching an IRA. Today I want to show an example of what stretching an IRA could look like. This is some pretty incredible stuff.

Okay, here we go. First, we have to make some assumptions:

Amount of the Roth IRA at the owner's death: $100,000
Child's age upon receiving the IRA: 10
Child's life expectancy upon inheriting the IRA: 72.8 (see chart in the link above)
Expected rate of return on the Roth IRA during the stretch: 10%

Here's what the numbers might look like:

      Account  Life               10%      Ending
Age   Value    Exp.     MRD      Growth    Balance
10    $100,000 72.8     -$1,374   $9,863   $108,489
11    $108,489 71.8     -$1,511  $10,698   $117,676
12    $117,676 70.8     -$1,662  $11,601   $127,615
13    $127,615 69.8     -$1,828  $12,579   $138,365
14    $138,365 68.8     -$2,011  $13,635   $149,990
15    $149,990 67.8     -$2,212  $14,778   $162,555
16    $162,555 66.8     -$2,433  $16,012   $176,134
17    $176,134 65.8     -$2,677  $17,346   $190,803
18    $190,803 64.8     -$2,944  $18,786   $206,644
19    $206,644 63.8     -$3,239  $20,341   $223,746
20    $223,746 62.8     -$3,563  $22,018   $242,201
21    $242,201 61.8     -$3,919  $23,828   $262,111
22    $262,111 60.8     -$4,311  $25,780   $283,579
23    $283,579 59.8     -$4,742  $27,884   $306,721
24    $306,721 58.8     -$5,216  $30,150   $331,655
25    $331,655 57.8     -$5,738  $32,592   $358,509
26    $358,509 56.8     -$6,312  $35,220   $387,417
27    $387,417 55.8     -$6,943  $38,047   $418,521
28    $418,521 54.8     -$7,637  $41,088   $451,972
29    $451,972 53.8     -$8,401  $44,357   $487,929
30    $487,929 52.8     -$9,241  $47,869   $526,556
31    $526,556 51.8    -$10,165  $51,639   $568,030
32    $568,030 50.8    -$11,182  $55,685   $612,533
33    $612,533 49.8    -$12,300  $60,023   $660,257
34    $660,257 48.8    -$13,530  $64,673   $711,400
35    $711,400 47.8    -$14,883  $69,652   $766,168
36    $766,168 46.8    -$16,371  $74,980   $824,777
37    $824,777 45.8    -$18,008  $80,677   $887,446
38    $887,446 44.8    -$19,809  $86,764   $954,400
39    $954,400 43.8    -$21,790  $93,261 $1,025,871
40  $1,025,871 42.8    -$23,969 $100,190 $1,102,093
41  $1,102,093 41.8    -$26,366 $107,573 $1,183,300
42  $1,183,300 40.8    -$29,002 $115,430 $1,269,727
43  $1,269,727 39.8    -$31,903 $123,782 $1,361,607
44  $1,361,607 38.8    -$35,093 $132,651 $1,459,165
45  $1,459,165 37.8    -$38,602 $142,056 $1,562,619
46  $1,562,619 36.8    -$42,462 $152,016 $1,672,172
47  $1,672,172 35.8    -$46,709 $162,546 $1,788,010
48  $1,788,010 34.8    -$51,380 $173,663 $1,910,293
49  $1,910,293 33.8    -$56,518 $185,378 $2,039,153
50  $2,039,153 32.8    -$62,169 $197,698 $2,174,682
51  $2,174,682 31.8    -$68,386 $210,630 $2,316,926
52  $2,316,926 30.8    -$75,225 $224,170 $2,465,871
53  $2,465,871 29.8    -$82,747 $238,312 $2,621,436
54  $2,621,436 28.8    -$91,022 $253,041 $2,783,455
55  $2,783,455 27.8   -$100,124 $268,333 $2,951,664
56  $2,951,664 26.8   -$110,137 $284,153 $3,125,680
57  $3,125,680 25.8   -$121,150 $300,453 $3,304,983
58  $3,304,983 24.8   -$133,265 $317,172 $3,488,889
59  $3,488,889 23.8   -$146,592 $334,230 $3,676,527
60  $3,676,527 22.8   -$161,251 $351,528 $3,866,803
61  $3,866,803 21.8   -$177,376 $368,943 $4,058,369
62  $4,058,369 20.8   -$195,114 $386,326 $4,249,581
63  $4,249,581 19.8   -$214,625 $403,496 $4,438,451
64  $4,438,451 18.8   -$236,088 $420,236 $4,622,600
65  $4,622,600 17.8   -$259,697 $436,290 $4,799,194
66  $4,799,194 16.8   -$285,666 $451,353 $4,964,880
67  $4,964,880 15.8   -$314,233 $465,065 $5,115,712
68  $5,115,712 14.8   -$345,656 $477,006 $5,247,061
69  $5,247,061 13.8   -$380,222 $486,684 $5,353,523
70  $5,353,523 12.8   -$418,244 $493,528 $5,428,807
71  $5,428,807 11.8   -$460,068 $496,874 $5,465,613
72  $5,465,613 10.8   -$506,075 $495,954 $5,455,491
73  $5,455,491 9.8    -$556,683 $489,881 $5,388,689
74  $5,388,689 8.8    -$612,351 $477,634 $5,253,972
75  $5,253,972 7.8    -$673,586 $458,039 $5,038,424
76  $5,038,424 6.8    -$740,945 $429,748 $4,727,228
77  $4,727,228 5.8    -$815,039 $391,219 $4,303,407
78  $4,303,407 4.8    -$896,543 $340,686 $3,747,550
79  $3,747,550 3.8    -$986,197 $276,135 $3,037,488
80  $3,037,488 2.8  -$1,084,817 $195,267 $2,147,938
81  $2,147,938 1.8  -$1,193,299  $95,464 $1,050,103
82  $1,050,103 0.8  -$1,050,103       $0         $0
                    $14,162,655

So, based on these numbers, if the grandchild only took the minimum required distibutions each year and left the rest of the IRA to grow, she could potentially take a total income of over $14 million off a $100,000 IRA!

That is some pretty fascinating stuff if you ask me.