Make Your Grandchild a Billionaire with a Stretch IRA

Several years ago, I read a book by Ed Slott that pointed out the amazing power of the Stretch IRA concept combined with a Roth IRA-
Parlay Your IRA into a Family Fortune: 3 EASY STEPS for creating a lifetime supply of tax-deferred, even tax-free, wealth for you and your family

The advantage of using a Roth IRA (instead of a traditional IRA) is that you and your spouse do not have to take out required minimum distributions during your lifetime and your beneficiary can withdraw money tax free.

I have worked out a hypothetical example using the concepts described in the book, which shows how you can make your grandchild a billionaire many times over using optimistic, yet plausible assumptions.

Here are the assumptions behind the following analysis:

  1. Bob is 45 years old, has had a successful career, saved a lot, and has accumulated $2,000,000 in a Roth IRA. Bob stops contributing to his Roth IRA at age 45, and lives to 85. He dies in 2050 and leaves his Roth IRA to his younger wife Sue.
  2. I assume an annual investment return of 10% a year. This is aggressive, but not totally unreasonable for a tax deferred account.
  3. Sue lives 10 more years and dies in 2060. By this time, granddaughter Chelsea is born and inherits the Roth Stretch IRA in the year 2060, the year of her birth, and begins taking her RMDs in 2061 when she turns one year old. Of course, a guardian or trust set up for her benefit would receive the Roth IRA distribution payments. Chelsea lives a long life and takes her final tax free distribution from the Stretch Roth IRA at age 82.

The calculations are presented below. Here are some of the highlights:

  • When grandchild Chelsea is born, she inherits a Roth IRA worth about $258 million. Note that this amount would be even higher if Bob had continued contributing to his Roth IRA after age 45. 
  • Even though, she takes tax free distributions every year, the Roth IRA account keeps growing until it maxes out at over $29 Billion when she is 72 years old.
  • If Chelsea withdraws only the Roth RMD amount each year for her full 82 year life expectancy, she will have withdrawn a total of over $75 Billion by the end of the stretch period, income tax free! She could easily afford to start a charitable foundation similar to the Gates Foundation and name it after her grandfather Bob who made it all possible.
  Age Roth IRA Account Roth IRA Life Expectancy Roth RMD Cum Roth RMD
           
2010 45 $2,000,000.00 38.8    
2011 46 $2,200,000.00 37.9    
2012 47 $2,420,000.00 37.0    
2013 48 $2,662,000.00 36.0    
2014 49 $2,928,200.00 35.1    
2015 50 $3,221,020.00 34.2    
2016 51 $3,543,122.00 33.3    
2017 52 $3,897,434.20 32.3    
2018 53 $4,287,177.62 31.4    
2019 54 $4,715,895.38 30.5    
2020 55 $5,187,484.92 29.6    
2021 56 $5,706,233.41 28.7    
2022 57 $6,276,856.75 27.9    
2023 58 $6,904,542.43 27.0    
2024 59 $7,594,996.67 26.1    
2025 60 $8,354,496.34 25.2    
2026 61 $9,189,945.97 24.4    
2027 62 $10,108,940.57 23.5    
2028 63 $11,119,834.63 22.7    
2029 64 $12,231,818.09 21.8    
2030 65 $13,454,999.90 21.0    
2031 66 $14,800,499.89 20.2    
2032 67 $16,280,549.88 19.4    
2033 68 $17,908,604.87 18.6    
2034 69 $19,699,465.35 17.8    
2035 70 $21,669,411.89 17.0    
2036 71 $23,836,353.08 16.3    
2037 72 $26,219,988.38 15.5    
2038 73 $28,841,987.22 14.8    
2039 74 $31,726,185.94 14.1    
2040 75 $34,898,804.54 13.4    
2041 76 $38,388,684.99 12.7    
2042 77 $42,227,553.49 12.1    
2043 78 $46,450,308.84 11.4    
2044 79 $51,095,339.72 10.8    
2045 80 $56,204,873.70 10.2    
2046 81 $61,825,361.07 9.7    
2047 82 $68,007,897.17 9.1    
2048 83 $74,808,686.89 8.6    
2049 84 $82,289,555.58 8.1    
2050 85 $90,518,511.14 7.6   Bob Dies  
2051 0 $99,570,362.25 82.4    
2052 0 $109,527,398.47 82.4    
2053 0 $120,480,138.32 82.4    
2054 0 $132,528,152.15 82.4    
2055 0 $145,780,967.37 82.4    
2056 0 $160,359,064.11 82.4    
2057 0 $176,394,970.52 82.4    
2058 0 $194,034,467.57 82.4    
2059 0 $213,437,914.33 82.4    
2060 0 $234,781,705.76 82.4 Sue Dies  0
2061 1 $258,259,876.34 81.6 $3,164,949.46 $3,164,949.46
2062 2 $280,604,419.56 80.6 $3,481,444.41 $6,646,393.88
2063 3 $304,835,272.66 79.6 $3,829,588.85 $10,475,982.73
2064 4 $331,106,252.19 78.6 $4,212,547.74 $14,688,530.47
2065 5 $359,583,074.90 77.6 $4,633,802.51 $19,322,332.98
2066 6 $390,444,199.62 76.6 $5,097,182.76 $24,419,515.74
2067 7 $423,881,718.55 75.6 $5,606,901.04 $30,026,416.78
2068 8 $460,102,299.26 74.6 $6,167,591.14 $36,194,007.92
2069 9 $499,328,178.93 73.6 $6,784,350.26 $42,978,358.18
2070 10 $541,798,211.54 72.6 $7,462,785.28 $50,441,143.46
2071 11 $587,768,968.88 71.6 $8,209,063.81 $58,650,207.27
2072 12 $637,515,895.58 70.6 $9,029,970.19 $67,680,177.47
2073 13 $691,334,517.92 69.6 $9,932,967.21 $77,613,144.68
2074 14 $749,541,705.78 68.6 $10,926,263.93 $88,539,408.61
2075 15 $812,476,986.03 67.6 $12,018,890.33 $100,558,298.94
2076 16 $880,503,905.28 66.6 $13,220,779.36 $113,779,078.29
2077 17 $954,011,438.51 65.6 $14,542,857.29 $128,321,935.59
2078 18 $1,033,415,439.34 64.6 $15,997,143.02 $144,319,078.61
2079 19 $1,119,160,125.95 63.6 $17,596,857.33 $161,915,935.94
2080 20 $1,211,719,595.48 62.6 $19,356,543.06 $181,272,479.00
2081 21 $1,311,599,357.66 61.6 $21,292,197.36 $202,564,676.36
2082 22 $1,419,337,876.33 60.6 $23,421,417.10 $225,986,093.46
2083 23 $1,535,508,105.15 59.6 $25,763,558.81 $251,749,652.28
2084 24 $1,660,719,000.97 58.6 $28,339,914.69 $280,089,566.97
2084 25 $1,795,616,994.91 57.6 $31,173,906.16 $311,263,473.13
2086 26 $1,940,887,397.62 56.6 $34,291,296.78 $345,554,769.91
2087 27 $2,097,255,710.93 55.6 $37,720,426.46 $383,275,196.36
2088 28 $2,265,488,812.92 54.6 $41,492,469.10 $424,767,665.46
2089 29 $2,446,395,978.20 53.6 $45,641,716.01 $470,409,381.47
2090 30 $2,640,829,688.41 52.6 $50,205,887.61 $520,615,269.09
2091 31 $2,849,686,180.88 51.6 $55,226,476.37 $575,841,745.46
2092 32 $3,073,905,674.96 50.6 $60,749,124.01 $636,590,869.47
2093 33 $3,314,472,206.04 49.6 $66,824,036.41 $703,414,905.88
2094 34 $3,572,412,986.59 48.6 $73,506,440.05 $776,921,345.94
2095 35 $3,848,797,201.19 47.6 $80,857,084.06 $857,778,430.00
2096 36 $4,144,734,128.85 46.6 $88,942,792.46 $946,721,222.46
2097 37 $4,461,370,470.02 45.6 $97,837,071.71 $1,044,558,294.17
2098 38 $4,799,886,738.14 44.6 $107,620,778.88 $1,152,179,073.05
2099 39 $5,161,492,555.18 43.6 $118,382,856.77 $1,270,561,929.82
2100 40 $5,547,420,668.25 42.6 $130,221,142.45 $1,400,783,072.27
2101 41 $5,958,919,478.39 41.6 $143,243,256.69 $1,544,026,328.96
2102 42 $6,397,243,843.86 40.6 $157,567,582.36 $1,701,593,911.32
2103 43 $6,863,643,887.65 39.6 $173,324,340.60 $1,874,918,251.92
2104 44 $7,359,351,501.76 38.6 $190,656,774.66 $2,065,575,026.58
2105 45 $7,885,564,199.82 37.6 $209,722,452.12 $2,275,297,478.70
2106 46 $8,443,425,922.46 36.6 $230,694,697.34 $2,505,992,176.04
2107 47 $9,034,004,347.64 35.6 $253,764,167.07 $2,759,756,343.10
2108 48 $9,658,264,198.63 34.6 $279,140,583.78 $3,038,896,926.88
2109 49 $10,317,035,976.34 33.6 $307,054,642.15 $3,345,951,569.03
2110 50 $11,010,979,467.60 32.6 $337,760,106.37 $3,683,711,675.40
2111 51 $11,740,541,297.36 31.6 $371,536,117.01 $4,055,247,792.41
2112 52 $12,505,905,698.39 30.6 $408,689,728.71 $4,463,937,521.11
2113 53 $13,306,937,566.65 29.6 $449,558,701.58 $4,913,496,222.69
2114 54 $14,143,116,751.58 28.6 $494,514,571.73 $5,408,010,794.42
2115 55 $15,013,462,397.83 27.6 $543,966,028.91 $5,951,976,823.33
2116 56 $15,916,446,005.82 26.6 $598,362,631.80 $6,550,339,455.13
2117 57 $16,849,891,711.42 25.6 $658,198,894.98 $7,208,538,350.10
2118 58 $17,810,862,098.09 24.6 $724,018,784.48 $7,932,557,134.58
2119 59 $18,795,527,644.98 23.6 $796,420,662.92 $8,728,977,797.50
2120 60 $19,799,017,680.26 22.6 $876,062,729.22 $9,605,040,526.72
2121 61 $20,815,250,446.15 21.6 $963,669,002.14 $10,568,709,528.85
2122 62 $21,836,739,588.42 20.6 $1,060,035,902.35 $11,628,745,431.20
2123 63 $22,854,374,054.67 19.6 $1,166,039,492.59 $12,794,784,923.79
2124 64 $23,857,168,018.29 18.6 $1,282,643,441.84 $14,077,428,365.63
2125 65 $24,831,977,034.10 17.6 $1,410,907,786.03 $15,488,336,151.66
2126 66 $25,763,176,172.87 16.6 $1,551,998,564.63 $17,040,334,716.29
2127 67 $26,632,295,369.07 15.6 $1,707,198,421.09 $18,747,533,137.39
2128 68 $27,417,606,642.77 14.6 $1,877,918,263.20 $20,625,451,400.59
2129 69 $28,093,657,217.52 13.6 $2,065,710,089.52 $22,691,161,490.11
2130 70 $28,630,741,840.80 12.6 $2,272,281,098.48 $24,963,442,588.59
2131 71 $28,994,306,816.56 11.6 $2,499,509,208.32 $27,462,951,796.91
2132 72 $29,144,277,369.06 10.6 $2,749,460,129.16 $30,212,411,926.07
2133 73 $29,034,298,963.89 9.6 $3,024,406,142.07 $33,236,818,068.14
2134 74 $28,610,882,104.00 8.6 $3,326,846,756.28 $36,563,664,824.42
2135 75 $27,812,438,882.49 7.6 $3,659,531,431.91 $40,223,196,256.33
2136 76 $26,568,198,195.64 6.6 $4,025,484,575.10 $44,248,680,831.43
2137 77 $24,796,984,982.60 5.6 $4,428,033,032.61 $48,676,713,864.03
2138 78 $22,405,847,144.99 4.6 $4,870,836,335.87 $53,547,550,199.90
2139 79 $19,288,511,890.04 3.6 $5,357,919,969.46 $58,905,470,169.36
2140 80 $15,323,651,112.64 2.6 $5,893,711,966.40 $64,799,182,135.76
2141 81 $10,372,933,060.86 1.6 $6,483,083,163.04 $71,282,265,298.80
2142 82 $4,278,834,887.61 0.6 $4,278,834,887.61 $75,561,100,186.41
2143 83 0 0 0 $75,561,100,186.41
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4 responses to “Make Your Grandchild a Billionaire with a Stretch IRA

  1. Is the Roth IRA contemplated for estate taxes? How long can it exist?

  2. Thanks. Is there a way to provide the excel template for this analysis…I wanted to run the numbers on my IRA

    • Larry-

      Send me your e-mail ( quant_invest@yahoo.com ) and I’ll mail you a copy of the Excel spreadsheet. You may want to play around with the assumptions to make them more conservative (e.g. use 8% return instead of 10%).

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