When a parent passes down an IRA, siblings named as beneficiaries often ask if the account can be split between them. The short answer is yes—but doing so requires careful attention to IRS rules, deadlines, and potential tax consequences. When handled properly, dividing an inherited IRA allows each sibling to manage their share individually. Here’s what to know to ensure the process follows federal guidelines and avoids costly mistakes.
Understanding The Basics Of An Inherited IRA
An inherited IRA is an account passed down after the original owner’s death. It allows beneficiaries to receive the funds while maintaining the tax-deferred status. For siblings inheriting the same IRA, the rules change depending on the account type and whether the parent had begun taking Required Minimum Distributions (RMDs) before passing.
Legal And Financial Advice Is Often Necessary
While splitting is legally allowed, it’s not always straightforward. IRS rules, evolving tax laws, and individual circumstances create a web of variables. Siblings considering a split should consult both a tax advisor and an estate attorney. In high-value accounts, this step can preserve thousands of dollars and prevent irreversible financial errors.
The Deadline For Splitting The Account
If siblings want separate inherited IRAs, the split must occur by December 31 of the year following the original owner’s death. Missing this deadline means the entire account is treated as a single entity, requiring all beneficiaries to follow a shared distribution plan, even if circumstances differ.
The Type Of IRA Impacts The Split
Whether it’s a traditional or Roth IRA affects how distributions are taxed. Traditional IRAs are taxed as income, while qualified Roth withdrawals are tax-free. This tax treatment remains even when the account is split, which makes it vital for siblings to understand the financial impact before deciding how to divide the inheritance.
Naming Beneficiaries Properly Matters
If the IRA owner names multiple beneficiaries directly, splitting the account is easier. But if the IRA is left to the estate or a trust, complications multiply. In such cases, siblings may face accelerated withdrawal schedules or fewer tax advantages, especially if the estate wasn’t structured with inherited IRAs in mind.
Each Sibling Gets Their Own Rules
Once split, each inherited IRA is governed independently. This means that one sibling can take lump sums, while another can stretch their withdrawals. However, this flexibility only becomes available after finalizing the split. If the accounts aren’t divided properly, everyone must follow a single, shared distribution schedule, regardless of age or personal financial strategy.
The Secure Act Changed The Game
Before 2020, non-spouse beneficiaries could stretch distributions over their lifetimes. The SECURE Act replaced that with a 10-year rule for most cases. Now, siblings must deplete the inherited IRA within a decade—unless one qualifies as an “eligible designated beneficiary.” Age, disability, or dependency status can dramatically change the payout timeline.
Custodians Don’t Always Make It Easy
IRA custodians aren’t required to notify beneficiaries of splitting options. Some may not offer clear guidance or may even impose internal deadlines. Failing to push for the split early could trap siblings in a single account. That’s why proactive communication with the custodian—preferably within weeks of the account owner’s passing—is vital.
Mistakes Can Trigger Hefty Taxes
An improperly executed split can accidentally trigger a full distribution, making the entire balance taxable. This is especially risky with large traditional IRAs. A seemingly minor misstep, such as failing to title the IRA properly, can erase years of tax advantages. Even experienced investors have stumbled over small technicalities in the process.
Coordinating Among Siblings
While IRS deadlines are critical, the logistics of coordinating among siblings are just as important. Each sibling must act independently to establish their own inherited IRA. Also, having a shared plan early—perhaps facilitated by a financial advisor—can ensure all beneficiaries stay on track and avoid unintentional tax consequences.
