An inherited IRA with multiple beneficiaries can be split into separate inherited IRA accounts — one for each beneficiary — but the split must be completed by December 31 of the year following the original account owner’s death. Missing this deadline forces all beneficiaries to use the oldest beneficiary’s life expectancy for Required Minimum Distributions (RMDs), which can cost younger heirs thousands of dollars in lost tax-deferred growth.
Under IRC Section 401(a)(9) and the SECURE Act of 2019, most non-spouse beneficiaries must now empty an inherited IRA within 10 years of the owner’s death. Over the next 20 years, an estimated $90 trillion in generational wealth will pass to heirs, and inherited IRAs make up a significant share of that transfer.
- 📋 The exact federal rules and deadlines for splitting an inherited IRA among multiple beneficiaries
- 💰 How the 10-year rule and annual RMD requirements affect each beneficiary’s tax bill
- ⚖️ The difference between eligible designated beneficiaries and non-eligible designated beneficiaries — and why it matters
- 🏦 Step-by-step instructions for working with your IRA custodian to create separate inherited IRA accounts
- ⚠️ The most common (and costly) mistakes people make with inherited IRAs and how to avoid them
What an Inherited IRA Is and Why Splitting Matters
An inherited IRA is a retirement account passed from a deceased owner to one or more named beneficiaries. The account keeps its tax-advantaged status, but the beneficiaries must follow specific IRS distribution rules about when and how much to withdraw. The inherited IRA is titled in a specific way — it must include both the deceased owner’s name and the beneficiary’s name (for example, “John Smith, deceased, FBO Jane Smith, beneficiary”).
When an IRA owner names multiple beneficiaries — say, three adult children — all of them at first share a single inherited IRA account. This creates a problem. Under IRS regulations, when multiple beneficiaries share one inherited IRA, the Required Minimum Distribution for everyone is based on the oldest beneficiary’s life expectancy.
A 30-year-old sibling stuck using a 55-year-old sibling’s life expectancy will be forced to take larger distributions — and pay more taxes — than necessary. This is not a small difference. Over a 10-year window, the tax impact can reach tens of thousands of dollars depending on the IRA balance and the age gap between beneficiaries.
Splitting the inherited IRA into separate accounts solves this problem. Each beneficiary gets their own inherited IRA and can use their own life expectancy (or their own 10-year timeline) for distribution purposes. This gives younger beneficiaries more time to stretch out distributions and keep more money growing tax-deferred.
The Federal Law Behind Inherited IRA Distributions
The rules governing inherited IRA distributions come from IRC Section 401(a)(9), which sets the framework for Required Minimum Distributions. The SECURE Act of 2019 made the biggest change in decades by eliminating the “stretch IRA” strategy for most non-spouse beneficiaries. Before the SECURE Act, a beneficiary could spread distributions over their entire lifetime — a 30-year-old inheriting an IRA could stretch withdrawals over 50+ years.
The SECURE Act replaced the lifetime stretch with a 10-year rule for most non-spouse beneficiaries. This means the entire inherited IRA balance must be distributed by the end of the 10th year after the original owner’s death. Congress viewed the old stretch strategy as a loophole that delayed tax revenue for decades.
The SECURE 2.0 Act of 2022 further clarified these rules and pushed the required beginning date for RMDs to age 73 (and eventually age 75 starting in 2033). This adjustment affects when the original owner is considered to have “started” RMDs, which in turn affects whether beneficiaries must take annual distributions during the 10-year window.
The IRS issued final regulations in 2024 confirming that certain beneficiaries under the 10-year rule must also take annual RMDs during those 10 years — not just empty the account by the end. This applies specifically when the original owner had already reached their required beginning date and started taking RMDs before death. The IRS had waived penalties for missed RMDs in 2021 through 2024 due to confusion, but those waivers ended and enforcement began in 2025.
Two Categories of Beneficiaries That Change Everything
The SECURE Act created two distinct categories of individual beneficiaries, and which category you fall into determines everything about your distribution timeline. Understanding this distinction is the most important step in distributing an inherited IRA to multiple beneficiaries.
Who Qualifies as an Eligible Designated Beneficiary (EDB)
Eligible designated beneficiaries are a special group that can still use the lifetime stretch method. They are exempt from the 10-year rule. The IRS defines five categories of EDBs:
- Surviving spouse of the account owner
- Minor children of the account owner (not grandchildren — and only until they reach the age of majority, at which point the 10-year clock starts)
- Disabled individuals as defined under IRC Section 72(m)(7)
- Chronically ill individuals as defined under IRC Section 7702B(c)(2)
- Individuals not more than 10 years younger than the deceased account owner
EDBs can take distributions based on their own life expectancy, which preserves the tax-deferred growth of the account for a much longer period. A surviving spouse has additional options that no other beneficiary has — including rolling the inherited IRA into their own IRA and treating it as their own. This spousal rollover option is exclusive — no other beneficiary category gets it.
Who Falls Into the Non-Eligible Designated Beneficiary (NEDB) Category
Everyone else — including adult children, siblings, friends, and most other individual beneficiaries — falls into the non-eligible designated beneficiary category. NEDBs must follow the 10-year rule. They cannot stretch distributions over their lifetime, no matter how young they are.
This chart shows which distribution rule applies to each beneficiary type:
| Beneficiary Type | Distribution Rule |
|---|---|
| Surviving spouse | Lifetime stretch or roll into own IRA |
| Minor child of the owner | Lifetime stretch until age of majority, then 10-year rule begins |
| Disabled individual | Lifetime stretch |
| Chronically ill individual | Lifetime stretch |
| Person within 10 years of owner’s age | Lifetime stretch |
| Adult child | 10-year rule |
| Sibling (more than 10 years younger) | 10-year rule |
| Friend or non-relative | 10-year rule |
| Non-individual entity (estate, charity) | 5-year rule or owner’s remaining life expectancy |
This distinction matters enormously when multiple beneficiaries inherit a single IRA. If one beneficiary is an EDB (like a surviving spouse) and another is an NEDB (like an adult child), they are subject to completely different distribution timelines. Splitting the IRA into separate accounts allows each person to follow their own rules without dragging the other into a less favorable position.
The Critical Deadline You Cannot Afford to Miss
The single most important date for inherited IRAs with multiple beneficiaries is December 31 of the year following the original account owner’s death. This is the deadline to split the inherited IRA into separate inherited IRA accounts for each beneficiary.
If the account owner died on March 15, 2025, the beneficiaries have until December 31, 2026 to complete the split. Missing this deadline has serious and irreversible consequences. All beneficiaries will be stuck using the oldest beneficiary’s life expectancy for RMD calculations, which results in larger mandatory withdrawals for younger beneficiaries.
The September 30 Determination Date
There is also an earlier administrative date to know: September 30 of the year following the year of death. This is the date by which the IRS determines who counts as the designated beneficiary. Any beneficiary who has cashed out their entire share or disclaimed their interest before this date is removed from the calculation.
This can be used as a strategy. If an estate or charity is named alongside individual beneficiaries, removing the non-individual entity before September 30 allows the remaining individuals to use their own life expectancies. If the non-individual beneficiary stays in place past that date, the IRA may be treated as having no designated beneficiary — which triggers either the 5-year rule or the owner’s remaining life expectancy method, both of which are less favorable.
How to Split an Inherited IRA: The Step-by-Step Process
Splitting an inherited IRA is not something you do on your own — the IRA custodian (the bank, brokerage, or financial institution holding the account) must handle the transfer. Each custodian has its own paperwork, but the general process is the same.
Step 1: Obtain the Death Certificate and Notify the Custodian
Contact the IRA custodian as soon as possible after the account owner’s death. Provide a certified copy of the death certificate and request the beneficiary claim forms. The custodian will freeze the account and begin the beneficiary claim process. Each named beneficiary will need to submit their own claim form along with a valid government-issued ID.
Step 2: Verify the Beneficiary Designation
The custodian will review the beneficiary designation form on file. This document — not the will — controls who inherits the IRA. If the designation says “50% to Child A, 25% to Child B, 25% to Child C,” that is exactly how the IRA will be divided, regardless of what the will says. Disputes over beneficiary designations can end up in court, so it is critical that the original account owner keeps this form updated.
Step 3: Each Beneficiary Opens a Separate Inherited IRA
Each beneficiary must open a new inherited IRA account at the custodian. The account title must include the deceased owner’s name — for example: “John Smith, deceased (DOD 03/15/2025), FBO Jane Smith, Beneficiary.” This is a trustee-to-trustee transfer, not a rollover. The funds move directly from the original inherited IRA into each beneficiary’s separate account without the beneficiary ever touching the money.
Step 4: Complete the Split Before the Deadline
The custodian transfers each beneficiary’s share into their separate inherited IRA according to the percentages on the beneficiary designation form. This must be completed by December 31 of the year following the owner’s death. Once the split is done, each beneficiary manages their account independently — choosing their own distribution strategy and timing their withdrawals.
Step 5: Begin Taking Required Distributions
After the split, each beneficiary calculates their own RMDs based on their beneficiary classification. EDBs use the IRS Single Life Table based on their own age. NEDBs follow the 10-year rule. Missing an RMD can result in a 25% penalty on the amount that should have been withdrawn — one of the steepest penalties in the tax code.
The 10-Year Rule: What It Really Means for Multiple Beneficiaries
The 10-year rule is the default distribution requirement for most non-spouse beneficiaries who inherit an IRA from someone who died after December 31, 2019. The entire inherited IRA balance must be emptied by the end of the 10th year following the year of the owner’s death. There is no extension and no exception for NEDBs.
When the Owner Died Before Their Required Beginning Date
If the original IRA owner died before reaching their required beginning date — currently age 73 — the beneficiary has flexibility within the 10-year window. There are no annual RMD requirements during years 1 through 9. The beneficiary can withdraw as much or as little as they want each year, as long as the entire balance is gone by the end of year 10. This flexibility opens the door for strategic tax planning.
When the Owner Died After Their Required Beginning Date
If the original owner had already begun taking RMDs before death, the rules get tighter. The IRS requires the beneficiary to take annual RMDs during years 1 through 9, with the remaining balance distributed in year 10. The annual RMD amount is calculated using the beneficiary’s age and the IRS Single Life Table found in Publication 590-B.
| When the Owner Died | Annual RMDs Required? |
|---|---|
| Before required beginning date (before age 73) | No — withdraw any amount during years 1–9, but empty by year 10 |
| After required beginning date (age 73 or older) | Yes — annual RMDs required in years 1–9, remainder in year 10 |
This distinction is critical for tax planning. Beneficiaries who are not required to take annual RMDs can strategically time their withdrawals to minimize their tax burden — taking more in low-income years and less in high-income years. Beneficiaries who are required to take annual RMDs have less flexibility but can still plan around the minimum amounts.
Three Real-World Scenarios With Multiple Beneficiaries
Scenario 1: Three Adult Siblings Inherit a Traditional IRA
The situation: Maria dies in 2025 at age 78. She had already been taking RMDs. She leaves her $600,000 Traditional IRA equally to her three adult children: Carlos (age 52), Ana (age 48), and Luis (age 40). All three are non-eligible designated beneficiaries subject to the 10-year rule.
What they should do: Split the IRA into three separate inherited IRAs of $200,000 each before December 31, 2026. Because Maria died after her required beginning date, each sibling must take annual RMDs during years 1 through 9 and empty the account by the end of 2035.
| What Happens | Tax and Financial Impact |
|---|---|
| IRA is split by Dec. 31, 2026 | Each sibling calculates RMDs based on their own life expectancy from the Single Life Table |
| IRA is not split by Dec. 31, 2026 | All three must use Carlos’s life expectancy (age 52, the oldest), resulting in larger RMDs for Ana and Luis |
| A sibling misses an annual RMD | 25% penalty on the shortfall; reducible to 10% if corrected within 2 years using Form 5329 |
| All three empty accounts by end of 2035 | No additional penalties; all distributions taxed as ordinary income in the year received |
If Luis (age 40) does not split and must use Carlos’s (age 52) life expectancy, his annual RMD will be significantly larger. Over 9 years of required distributions, Luis could pay thousands more in taxes than he would using his own, longer life expectancy. The difference compounds because less money stays in the account growing tax-deferred.
Scenario 2: Surviving Spouse and Adult Child Share an IRA
The situation: David dies in 2025 at age 70 (before his required beginning date). He leaves his $500,000 Traditional IRA split 60% to his wife Sarah (age 68) and 40% to their adult son Michael (age 42). Sarah is an EDB. Michael is an NEDB.
What they should do: Split the IRA before December 31, 2026. Sarah receives $300,000 in her separate inherited IRA. Michael receives $200,000 in his. Sarah can roll her share into her own IRA and delay distributions until she turns 73. Michael must follow the 10-year rule and empty his inherited IRA by the end of 2035.
| What Happens | Tax and Financial Impact |
|---|---|
| Sarah rolls inherited IRA into her own IRA | She delays RMDs until age 73, maximizing tax-deferred growth for 5 more years |
| Michael takes no withdrawals for years 1–9, then empties in year 10 | He owes income tax on a large $200,000+ lump sum in one year — likely pushing him into the 32% or 35% federal bracket |
| Michael spreads withdrawals evenly over 10 years | He pays tax each year on ~$20,000, likely at a lower marginal rate of 22% or 24% |
| They do not split the IRA | Sarah loses her spousal rollover option; both must follow the more restrictive beneficiary rules |
The failure to split is especially damaging here. Sarah’s spousal rollover — her most powerful option — is only available if she has her own separate account. If the IRA stays as one shared account, she may lose the ability to treat it as her own IRA entirely.
Scenario 3: Trust Named as Beneficiary Alongside Individuals
The situation: Patricia dies in 2025 at age 80. She leaves her $900,000 IRA split three ways: 1/3 to a conduit trust for her grandson Jake (age 15), 1/3 to her daughter Emily (age 50), and 1/3 to a local charity. Patricia had been taking RMDs.
What they should do: Split the IRA into three separate accounts before December 31, 2026. The charity should cash out its $300,000 share before September 30, 2026 — this removes a non-individual beneficiary from the equation, which preserves favorable treatment for the remaining individual beneficiaries. Emily follows the 10-year rule on her $300,000. Jake, as a minor child, is an EDB and can stretch distributions through the conduit trust until he reaches adulthood, then the 10-year clock starts.
| What Happens | Tax and Financial Impact |
|---|---|
| Charity cashes out before Sept. 30, 2026 | Removes non-individual beneficiary; Emily and Jake’s trust follow their own rules independently |
| Charity does not cash out before Sept. 30, 2026 | IRA may be treated as having no designated beneficiary, triggering the 5-year rule or less favorable distribution rules for everyone |
| Conduit trust distributes all RMDs to Jake | Jake (or his guardian) receives distributions and pays income tax at Jake’s lower rate; once Jake reaches adulthood, the 10-year rule kicks in |
| Emily spreads withdrawals over 10 years | Lower annual tax impact compared to waiting until year 10 |
The charity’s share is a ticking clock in this scenario. Charities do not pay income tax, so a lump-sum distribution to the charity has no tax consequence for the charity itself. But if the charity remains as a named beneficiary past September 30, it can contaminate the entire IRA’s beneficiary status and hurt Emily and Jake.
Traditional vs. Roth: How the Inherited IRA Type Changes Everything
The distribution timeline rules are the same for both Traditional and Roth inherited IRAs. A non-eligible designated beneficiary must empty either type within 10 years. An eligible designated beneficiary can stretch either type. The difference is taxes — and that difference is massive.
| Feature | Inherited Traditional IRA |
|---|---|
| Distributions taxed as | Ordinary income |
| Tax-free withdrawals? | No (except for any after-tax basis contributions) |
| Best strategy for NEDBs | Spread withdrawals evenly to manage tax brackets |
| Annual RMDs if owner died after RBD? | Yes — required in years 1 through 9 |
| Feature | Inherited Roth IRA |
|---|---|
| Distributions taxed as | Tax-free (if 5-year holding period is met) |
| Tax-free withdrawals? | Yes — both contributions and earnings |
| Best strategy for NEDBs | Delay withdrawals to maximize tax-free growth, empty in year 10 |
| Annual RMDs if owner died after RBD? | No — Roth IRAs have no required beginning date for the original owner |
Inherited Roth IRAs are subject to the same RMD timeline as Traditional inherited IRAs, but Roth IRAs do not have a required beginning date for the original owner. This means beneficiaries of an inherited Roth are never required to take annual RMDs during the 10-year period. They only need to empty the account by the end of year 10.
The optimal strategy for a Roth inherited IRA is the opposite of a Traditional. With a Roth, beneficiaries should wait as long as possible to withdraw, letting the money grow tax-free for up to 10 years. With a Traditional, beneficiaries should spread withdrawals evenly to avoid a large taxable event in any single year. A $500,000 Traditional IRA withdrawn all at once could push someone into the 37% federal tax bracket, while spreading it over 10 years at $50,000 per year might keep them in the 22% bracket.
There is one catch with inherited Roth IRAs. If the original Roth IRA was open for fewer than 5 years before the owner’s death, the earnings portion of distributions may be taxable. Contributions are always tax-free, but earnings withdrawn before the 5-year mark are subject to income tax. This is rare since most Roth IRA owners have held their accounts for decades, but it is worth checking.
Trust Beneficiaries: Conduit vs. Accumulation Trust Showdown
Naming a trust as a beneficiary of an IRA is a common estate planning strategy, but the SECURE Act changed the calculus in ways that caught many families off guard. There are two main types of trusts used for inherited IRAs, and each has very different consequences under the 10-year rule.
How Conduit Trusts Work (and Why They May Backfire)
A conduit trust requires the trustee to pass all IRA distributions directly through to the trust beneficiary. Nothing stays inside the trust. Before the SECURE Act, this worked perfectly — small annual RMDs based on the beneficiary’s life expectancy flowed through to the beneficiary over decades.
After the SECURE Act, the entire IRA balance must be distributed within 10 years, and all of it flows through to the beneficiary. A $500,000 IRA dumped into a conduit trust and then forced out to the beneficiary within 10 years defeats the purpose of using a trust to protect assets. Families who created conduit trusts to protect a spendthrift beneficiary from blowing through their inheritance now find that the trust offers no protection at all.
How Accumulation Trusts Offer More Control (at a Cost)
An accumulation trust allows the trustee to hold IRA distributions inside the trust rather than passing them through to the beneficiary. This gives the trustee control over when and how much the beneficiary receives — real asset protection. The downside is that trusts reach the highest federal income tax bracket (37%) at just $15,200 of taxable income, far less than the $609,350 threshold for individuals.
| Trust Type | Key Consideration |
|---|---|
| Conduit trust | All IRA distributions pass directly to the beneficiary; no asset protection under the 10-year rule |
| Accumulation trust | Trustee can hold distributions inside the trust; taxed at compressed trust rates — 37% kicks in at $15,200 |
Families with multiple beneficiaries who include a trust should work with an estate planning attorney to re-evaluate their trust structure in light of the SECURE Act. A conduit trust that made perfect sense before 2020 may now cause more harm than good. Switching to an accumulation trust — or removing the trust altogether — may be the better path.
The Full Tax Picture: How Inherited IRA Distributions Hit Your Return
Distributions from an inherited Traditional IRA are taxed as ordinary income in the year they are received. They are added to the beneficiary’s other income — wages, Social Security, investment income — and taxed at their marginal tax rate. A large distribution in a single year can push a beneficiary into a higher tax bracket and trigger additional consequences like the 3.8% Net Investment Income Tax on other investment income.
For multiple beneficiaries, each person reports only the distributions from their own inherited IRA on their tax return. The custodian issues a Form 1099-R to each beneficiary showing the amount distributed during the year. This is another reason splitting the IRA into separate accounts matters — it simplifies tax reporting and ensures each person controls their own tax liability independently.
Inherited Roth IRA distributions are generally tax-free as long as the original Roth IRA was open for at least 5 years before the owner’s death. Contributions withdrawn from an inherited Roth are always tax-free regardless of the 5-year rule. Only earnings may be taxable if the 5-year requirement is not met.
How State Taxes Add Another Layer
Most states follow federal rules for inherited IRA taxation, but there are important exceptions. States like Florida, Texas, Nevada, and Wyoming have no state income tax, so inherited IRA distributions are only subject to federal tax. States like California, New York, and New Jersey impose their own income tax on inherited IRA distributions, which can add 5–13% on top of the federal rate.
A beneficiary in California in the 35% federal bracket could face a combined tax rate of nearly 48% on their inherited Traditional IRA distributions. This makes the distribution strategy even more important. Spreading withdrawals over 10 years instead of taking a lump sum can save a California resident tens of thousands of dollars compared to what they would owe on a single large withdrawal.
Mistakes That Cost Beneficiaries Thousands
Inherited IRA mistakes are expensive — and often irreversible. These are the errors that tax professionals see most often when multiple beneficiaries inherit a single IRA.
Mistake 1: Missing the December 31 Split Deadline
Failing to split the inherited IRA into separate accounts by December 31 of the year following death forces all beneficiaries to use the oldest beneficiary’s life expectancy. For a group of siblings spanning 15+ years in age, the youngest members lose years of tax-deferred growth. There is no way to fix this after the deadline passes.
Mistake 2: Doing a 60-Day Rollover Instead of a Trustee-to-Trustee Transfer
Non-spouse beneficiaries cannot do a 60-day rollover with an inherited IRA. If a non-spouse beneficiary takes a distribution and tries to redeposit it within 60 days, the IRS treats the entire amount as a taxable distribution. The money cannot go back in. The only legal option for moving inherited IRA funds is a direct trustee-to-trustee transfer where the money goes straight from one custodian to another without the beneficiary touching it.
Mistake 3: Forgetting to Take Annual RMDs When Required
If the original owner died after their required beginning date, non-eligible designated beneficiaries must take annual RMDs during years 1 through 9 of the 10-year period. Many beneficiaries wrongly assume they can simply wait 10 years and take everything out at the end. The IRS penalty for missing an RMD is 25% of the shortfall, reducible to 10% if corrected within two years by filing Form 5329.
Mistake 4: Titling the Account Incorrectly
An inherited IRA must include the deceased owner’s name in the account title. Titling it in only the beneficiary’s name can trigger a full taxable distribution. The correct format is: “[Deceased Name], deceased, FBO [Beneficiary Name], Beneficiary.” This seemingly small administrative detail has caused countless unnecessary tax bills.
Mistake 5: Not Removing Non-Individual Beneficiaries Before September 30
If a charity, estate, or other non-individual entity is named alongside individual beneficiaries, the non-individual must be cashed out or separated before September 30 of the year following death. Failing to do so can cause the IRA to be treated as having no designated beneficiary, which triggers the 5-year rule or the deceased owner’s remaining life expectancy — both far less favorable options.
Mistake 6: Assuming the Will Controls Who Gets the IRA
The beneficiary designation form — not the will and not a trust document — determines who inherits the IRA. If the account owner updated their will but forgot to update the IRA beneficiary form, the IRA goes to whoever is named on the form. Ex-spouses, deceased individuals, and unintended recipients have inherited IRAs because of outdated beneficiary designations.
Mistake 7: Using the Wrong Life Expectancy Table
Beneficiaries of inherited IRAs must use the IRS Single Life Table (Table I in Publication 590-B), not the Uniform Lifetime Table (which is for account owners taking their own RMDs). Using the wrong table results in incorrect RMD calculations — either too little (triggering a penalty) or too much (accelerating your tax bill unnecessarily).
Do’s and Don’ts for Inherited IRA Distributions
| Do | Don’t |
|---|---|
| Split the IRA into separate accounts before Dec. 31 of the year after death — this preserves each beneficiary’s individual distribution options | Don’t miss the December 31 deadline — all beneficiaries get stuck using the oldest person’s life expectancy, and this cannot be reversed |
| Use a direct trustee-to-trustee transfer to move funds — this avoids accidental taxable events | Don’t attempt a 60-day rollover as a non-spouse beneficiary — the IRS will treat the entire amount as a fully taxable distribution |
| Take annual RMDs if the original owner died after their required beginning date — the penalty for missing is 25% of the shortfall | Don’t assume you can wait until year 10 to withdraw everything — annual RMDs may be required depending on when the owner died |
| Consult a tax advisor before taking large distributions — timing matters for your tax bracket and can save thousands | Don’t take a lump-sum distribution from a Traditional inherited IRA without first modeling the tax impact across multiple years |
| Verify the beneficiary designation form matches the owner’s wishes — this document controls the IRA, not the will | Don’t assume the will overrides the beneficiary designation form — it does not, and courts consistently uphold the designation |
| Cash out or remove non-individual beneficiaries (estate, charity) before Sept. 30 — this protects remaining individual beneficiaries | Don’t leave a non-individual beneficiary in place past the September 30 determination date — it can contaminate the entire IRA’s status |
| Name a successor beneficiary on each separate inherited IRA after the split | Don’t forget to designate a successor — without one, the inherited IRA may pass to your estate and trigger accelerated distributions |
Weighing the Pros and Cons of Splitting an Inherited IRA
| Pros of Splitting | Cons of Splitting |
|---|---|
| Each beneficiary uses their own life expectancy or 10-year timeline for RMDs, preserving more tax-deferred growth | Requires paperwork, coordination with the custodian, and meeting a strict deadline |
| Younger beneficiaries take smaller required distributions and keep more money growing | Multiple accounts mean more statements, more 1099-R forms, and more administrative tracking each year |
| Each person controls their own investment choices, withdrawal timing, and distribution strategy | Some custodians charge annual account maintenance fees for each separate inherited IRA |
| Simplifies tax reporting — each beneficiary reports only their own distributions on their return | The split must be completed by Dec. 31 of the year after death — missing this deadline is irreversible |
| Prevents disputes — each beneficiary manages their share independently without needing the others’ permission | If beneficiaries disagree on timing or can’t locate required documents, coordinating the split before the deadline can be stressful |
| A surviving spouse can exercise the spousal rollover option only if they have a separate account | Splitting does not change the total tax owed — it only changes each person’s ability to control when they pay it |
Successor Beneficiaries: What Happens When a Beneficiary Dies
A successor beneficiary is someone who inherits an inherited IRA after the original beneficiary dies. The SECURE Act changed the rules for successor beneficiaries too. If the original beneficiary was stretching distributions (because they inherited before 2020 or were an EDB), the successor beneficiary is now subject to the 10-year rule.
The 10-year clock for a successor beneficiary resets in some cases — specifically when the original beneficiary was an EDB who was stretching. The successor gets a fresh 10-year window starting the year after the original beneficiary’s death. If the original beneficiary was already subject to the 10-year rule (because they were an NEDB), the successor does not get a new 10 years. They must empty the account within the remaining time left on the original 10-year clock.
This is an important consideration for multiple beneficiaries who have split the IRA into separate accounts. Each person should name their own successor beneficiary on their separate inherited IRA. Without a named successor, the inherited IRA may pass through the deceased beneficiary’s estate, which can trigger accelerated distribution requirements and result in a larger tax bill for the estate.
Key IRS Forms and Deadlines at a Glance
| Deadline or Form | Purpose |
|---|---|
| September 30 of year after death | Designated beneficiary determination date — remove non-individual beneficiaries before this date to protect individual beneficiaries |
| December 31 of year after death | Deadline to split the inherited IRA into separate accounts for each beneficiary |
| Form 1099-R | Issued by the custodian to each beneficiary annually, reporting the amount of distributions taken during the tax year |
| Form 5329 | Filed to report missed RMDs and request a penalty reduction from 25% to 10% if corrected within two years |
| IRS Single Life Table (Table I in Pub. 590-B) | Used by beneficiaries to calculate annual RMDs based on their own life expectancy |
| Form 8606 | Used to track after-tax (basis) contributions in an inherited Traditional IRA to avoid double taxation |
Each of these forms is available on the IRS website and through most IRA custodians. Form 1099-R is generated automatically by the custodian. Forms 5329 and 8606 must be filed by the beneficiary with their annual tax return.
Pre-2020 Inherited IRAs: The Legacy Stretch Rules Still Apply
Beneficiaries who inherited an IRA from someone who died before January 1, 2020, are not subject to the 10-year rule. They follow the pre-SECURE Act rules, which allow lifetime stretch distributions based on the beneficiary’s own life expectancy. These beneficiaries should still split the IRA if there are multiple beneficiaries, because the “oldest beneficiary” rule applies to pre-2020 inherited IRAs as well.
If a pre-2020 stretch beneficiary dies after December 31, 2019, their successor beneficiary is subject to the SECURE Act’s 10-year rule. The successor gets a fresh 10-year clock starting the year after the original beneficiary’s death. In some cases, this actually benefits the successor — under the old rules, they would have been limited to the original beneficiary’s remaining life expectancy, which could have been fewer than 10 years.
Pre-2020 beneficiaries who are still stretching their distributions should review their RMD calculations each year. The IRS updated the Single Life Table in 2022, and beneficiaries who inherited before 2020 were allowed a one-time reset of their life expectancy factor using the new table. This generally resulted in slightly smaller annual RMDs — a small but meaningful tax benefit.
FAQs
Can an inherited IRA be split between siblings?
Yes. Each sibling can receive their own separate inherited IRA by completing a trustee-to-trustee transfer before December 31 of the year following the owner’s death.
Do all beneficiaries have to agree to split the inherited IRA?
No. Each beneficiary can independently request their share be transferred to a separate inherited IRA without needing unanimous consent from the other beneficiaries.
What happens if you miss the deadline to split an inherited IRA?
All beneficiaries must use the oldest beneficiary’s life expectancy for RMD calculations. This results in larger required distributions and higher taxes for younger beneficiaries. The deadline is irreversible.
Can a non-spouse beneficiary roll an inherited IRA into their own IRA?
No. Only a surviving spouse can roll an inherited IRA into their own IRA. Non-spouse beneficiaries must keep the funds in a properly titled inherited IRA.
Is an inherited Roth IRA subject to the 10-year rule?
Yes. Inherited Roth IRAs follow the same distribution timeline, but withdrawals are generally tax-free if the original Roth met the 5-year holding period before the owner’s death.
Can you disclaim an inherited IRA?
Yes. A beneficiary can disclaim their share within 9 months of the owner’s death. The disclaimed portion passes to the contingent beneficiary named on the designation form.
Do inherited IRA distributions count as taxable income?
Yes for Traditional IRAs — distributions are taxed as ordinary income. Inherited Roth IRA distributions are generally tax-free if the 5-year rule is met.
What is the penalty for missing an inherited IRA RMD?
The IRS imposes a 25% excise tax on the shortfall. Filing Form 5329 and correcting the error within two years can reduce the penalty to 10%.
Can a trust be the beneficiary of an inherited IRA?
Yes. A trust can be named, but distribution rules depend on whether it qualifies as a “see-through” trust with identifiable individual beneficiaries underneath.
Does the SECURE Act apply to IRAs inherited before 2020?
No. IRAs inherited before January 1, 2020, follow the pre-SECURE Act stretch rules. The 10-year rule only applies to IRAs inherited after December 31, 2019.
Can a beneficiary take a lump-sum distribution from an inherited IRA?
Yes. Any beneficiary can withdraw the entire balance at any time, but the full amount is taxable as ordinary income for Traditional IRAs in that year.
What happens to an inherited IRA if no beneficiary is named?
The IRA passes to the estate. The estate must follow the 5-year rule or the owner’s remaining life expectancy — both less favorable than individual beneficiary rules.
Related reading
- How to Roll Over an Inherited IRA (w/Examples) + FAQs
- Are RMDs Required for Inherited IRAs? (w/Examples) + FAQs
- Does an Inherited IRA Continue to Grow? (w/Examples) + FAQs
- Can a Beneficiary Less Than 10 Years Younger Stretch an IRA? (w/Examples) + FAQs
- How Do RMDs Work If You Inherit From Someone Already Taking Them? (w/Examples) + FAQs
- How Do You Calculate RMDs on an Inherited IRA? (w/Examples) + FAQs