Inherited IRA Split Three Ways: What Executors Must Know
Splitting an inherited IRA among siblings isn't as simple as cashing out. Executors face strict IRS rules and tax consequences.
When a parent or relative dies and leaves an IRA to multiple beneficiaries, the executor often assumes a quick cash-out is the easiest path forward — but federal tax law makes that assumption costly. If you and your siblings inherited an IRA jointly, the IRS imposes specific distribution rules that can trigger significant income tax bills if ignored, and executors carry legal responsibility for handling the account correctly.
The core question many executors face is whether the financial institution requires each beneficiary to open a separate inherited IRA before the funds can be divided. In most cases, the answer is yes — splitting the account into individual inherited IRAs for each sibling is the standard and often required procedure. This process, known as a beneficiary split, generally must be completed by December 31 of the year following the original account holder's death to allow each heir to use their own life expectancy for required minimum distributions.
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Cashing out the entire inherited IRA in one lump sum is technically possible, but it comes with a steep price. The full distributed amount is treated as ordinary income in the year it is received, which could push all three siblings into higher tax brackets simultaneously. Spreading distributions over time — within IRS-mandated windows — is typically far more tax-efficient, particularly under the SECURE Act's 10-year rule, which requires most non-spouse beneficiaries to fully draw down inherited IRAs within a decade.
Executors should also be aware that their fiduciary duty extends to informing co-beneficiaries of their options and deadlines. Failing to act in time or making uninformed decisions can expose the estate — and the executor personally — to legal and financial liability. Consulting a tax advisor or estate attorney before making any moves is strongly recommended, especially when multiple heirs are involved and account balances are substantial.
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