Calculators

RMD & Stretch IRA Calculator - Glossary of Terms

Stretch IRA Strategy

DefinitionsThe Stretch IRA Strategy is only for those who do not need their entire IRA to cover their living expenses. The strategy assumes that you will take the smallest amount of money from the IRA that the law allows, and at the latest time it allows, without penalty. You should consider the effect of inflation on the assets included inside of the IRA, as inflation will erode purchasing power over time. You should remember that assets included inside of the IRA are subject to market risk, including the possible loss of principal. You should consider the fact that tax laws and IRS rules may change over time, potentially limiting the effectiveness of the Stretch IRA strategy.

Keeping these factors in mind, this calculator is designed to show you how you can stretch out your IRA distributions for as long as possible, even into the next generation. To do this, we do the following:

If you have your spouse as the beneficiary of the account:

The IRA owner names his/her spouse as sole primary beneficiary of the IRA. While alive, the IRA owner begins taking RMD payments at age 70 ½, using a factor from the IRS Uniform Lifetime Table to calculate the distribution (unless the spouse is more than 10 years younger than the owner and is the owner's sole beneficiary).
Upon the death of the IRA owner, the surviving spouse rolls over the funds to his/her own IRA. Any RMD amount that was not taken for the year of death from the decreased spouse's IRA cannot be rolled over. The surviving spouse names a new IRA beneficiary, such as a child, and begins taking RMD at age 70 1/2 based on the Uniform Lifetime Table.
Upon the surviving spouse's death, beneficiaries are required to take distributions. The beneficiaries generally take distributions from the IRA based on the life expectancy of the oldest beneficiary. Unless the account is split into separate accounts for each beneficiary by December 31st of the year following the year of death.

If your beneficiary is not a spouse:

The IRA owner names a beneficiary or beneficiaries of the IRA. While alive, the IRA owner begins taking RMD payments at age 70 ½ using the Uniform Distribution Table to calculate the distribution.
Upon the death of the IRA owner, the beneficiaries are required to take distributions. The beneficiaries generally take distributions from the IRA based on the life expectancy of the oldest beneficiary. Unless the account is split into separate accounts for each beneficiary by December 31st of the year following the year of death.

The figures created for with this calculator are hypothetical and based on current and variable assumptions you selected to help illustrate a concept. Many factors could impact this hypothetical concept, such as possible changes to tax laws in the future, the impact of inflation and other risks.

Owner's birth date

The account owner's birth date. We use this to calculate the account owner's age as well as when minimum distributions are required to take place.

Owner's age at death

This is the age at which you believe the owner of the account will die. Since the IRS uses the age of the account owner as of 12/31 of any give year, this is actually the age of the account owner as of 12/31 of the year they died.

Annual rate of return

This is the expected rate of return on your account. This is only used to help project your future account balances (which of course will impact your required minimum distribution). The actual rate of return is largely dependant on the type of investments you select. From January 1970 to December 2007, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.4% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank can pay as little as 1% or less.

It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.

Previous year end value

This is the fair market value of your account as of the close of business on December 31st of the preceding year. For IRAs, no adjustments are made for contributions or distributions after that date. If you made a transfer or rollover from one account on or before December 31st of the preceding year and the funds were received by a new account in the next year, you will need to increase your December 31st fair market value by the amount that was transferred or rolled over and not included in the December 31 value of either account. This amount may also include the actuarial present value of any additional benefits not reflected in your year-end balance.

Plan type

Please enter the plan type. The plan type will not affect the calculations, it is used for descriptive purposes only.

Beneficiary birth date

This is the birth date of the account owner's beneficiary.

Beneficiary's age at death

This is the age at which you believe the original beneficiary of the account will die. Like the account owner's age at death, this is actually the age of the beneficiary as of 12/31 of the year they died.

Is beneficiary a spouse? Checkbox

Check this box if your only beneficiary is your spouse. The new IRS rules use the Uniform Lifetime Table to calculate all life expectancies for determining a minimum distribution. The only exception to this rule is if the only beneficiary is a spouse and he or she is more than 10 years younger than the account owner. In this situation, the joint life expectancy table is used. The Joint Life expectancy table normally produces lower required distributions.

We also use this entry form to determine whether to calculate for a spouse's beneficiary's life expectancy.

Spouse's beneficiary's birth date

If the first beneficiary is a spouse of the original account owner, we use this birth date to determine the life expectancy of the spouse's beneficiary.