Can an Inherited IRA Be Split Between Siblings?
Inheriting an Individual Retirement Account (IRA) can be a significant financial windfall, but what happens when the inherited IRA is meant to be shared among siblings? This article delves into the question of whether an inherited IRA can be split between siblings and explores the legal and practical considerations involved.
Understanding Inherited IRAs
When an individual passes away, their IRA becomes an inherited IRA. The beneficiaries of the IRA have several options for managing the inherited account, including taking a lump-sum distribution, rolling it over into their own IRA, or taking distributions over a set period. The rules governing inherited IRAs are designed to ensure that the account’s assets are managed responsibly and that the beneficiaries receive the maximum benefit from the inherited funds.
Can an Inherited IRA Be Split Between Siblings?
The short answer is yes, an inherited IRA can be split between siblings. However, this process is subject to certain rules and requirements. According to the IRS, if a deceased IRA owner named multiple beneficiaries, each beneficiary must be given the option to treat their share of the inherited IRA as their own separate IRA. This means that each sibling can take their portion of the inherited IRA and manage it independently.
How to Split an Inherited IRA
To split an inherited IRA between siblings, the following steps must be followed:
1. Notify the IRA custodian of the deceased IRA owner that the account is being inherited.
2. Request a split of the inherited IRA from the custodian.
3. Each sibling must establish their own separate IRA, if they do not already have one.
4. The custodian will transfer the appropriate amount from the inherited IRA to each sibling’s separate IRA.
Legal and Tax Implications
It is essential to understand the legal and tax implications of splitting an inherited IRA. Here are some key points to consider:
1. Each sibling’s share of the inherited IRA is subject to the same required minimum distribution (RMD) rules as the original IRA owner.
2. If the deceased IRA owner did not take RMDs in the year of their death, the beneficiaries must take any missed RMDs by December 31st of the year following the year of death.
3. Splitting an inherited IRA may result in higher taxes, as the entire inherited amount is subject to income tax in the year of distribution.
Conclusion
In summary, an inherited IRA can be split between siblings, provided that each sibling establishes their own separate IRA and follows the appropriate procedures. While splitting an inherited IRA can offer certain benefits, it is crucial to understand the legal and tax implications to ensure that the process is handled correctly. Consulting with a financial advisor or tax professional can provide valuable guidance and help ensure that the inherited IRA is managed responsibly.
