A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Monday, February 21, 2005

Stretch a Small Roth IRA

Using the stretch feature of an IRA can turn a small inheritance into a HUGE inheritance if you follow these rules:

1. Only take out the Required Minimum Distribution (this link will show you how to compute the RMD) each year. The less money you take out, the longer the remaining money will be able to compound.

2. Invest the bulk of the IRA in equities. Over a lifetime, this will make a HUGE difference. Just take a look at the table below of an example of a 10 year-old inheriting a $10,000 Roth IRA.
                          Total Lifetime
ROR Income
8% $464,116
10% $1,416,266
12% $4,386,137

So, you don't have to be "rich" to be able to leave a legacy. This is a much better way to leave an inheritance than just leaving money.