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Splitting Inherited IRAs


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In the case of an inherited IRA, splitting it often is desirable in order to better accommodate a distribution plan after the primary owner dies. This can be done prior to the death of the IRA owner, or it could be done after the death of the IRA owner, as long as it’s accomplished before the end of the year following the year of death.

Why is this important?

When an IRA is inherited by a non-spouse individual, that individual is required to begin taking distribution of that IRA. The required distribution is based either upon the heir’s age or the age of the decedent. In most cases when the beneficiary is younger than the decedent, it is more advantageous to stretch those payments out over the longer period of time by using the heir’s age for the required distribution.

If there is more than one beneficiary, unless the IRA is split, the Required Minimum Distributions (RMDs) will be based upon the attained age of the “designated beneficiary”. This is the oldest living beneficiary as of September 30 of the year following the year of death of the primary IRA’s owner.

You can split the IRA into separate IRAs for each beneficiary, each titled as “John Jones, deceased, FBO Jane Brown” (probably not exactly like that because the names will be different in almost all cases). Then the individual IRAs can be distributed according to the age of each individual beneficiary. Splitting the IRA must be completed by December 31 of the year following the year of death.

Note: you don’t have to split the IRA into separate IRAs by September 30 of the year following the year of death. This is just the administrative date for determination of the designated beneficiary. If you split the IRA into separate inherited IRAs by December 31 of the year following the year of death, then administratively the designated beneficiary of each separate IRA as of September 30 would be the individual heir owner of the account.

Splitting the IRA into separate IRAs for each intended heir before the original owner dies simplifies matters for the heirs. By splitting the IRA before death, the inheritants can simply take RMDs based on their own attained age, and nothing else is required (no account splitting, no deadlines to meet). But if this isn’t (or can’t be) done, splitting the IRA after death is usually best for all involved.


  1. Joe says:

    What are the consequences of not re-titling the account F/B/O? Can you point me to a specific regulation or section of the code? Thanks.

    1. jblankenship says:

      Okay – I’ll assume you’re talking about an inherited IRA with only one non-spouse beneficiary… according to Publication 590, the non-spouse beneficiary can not roll over funds into an IRA of their own, but may “make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.” That covers the requirement of how the titling must be done if it is retitled.

      As far as consequences for not retitling, I don’t believe there is a regulation that requires retitling – nor is there a time limit on when you must retitle. And things might be just fine if the beneficiary lives out his life and doesn’t die until Table I says he should. But you know about how mice, men and their best laid schemes “gang aft agley” sometimes…? (most of the time!) One reason in particular that I would think you’d want to retitle the account is so that you can designate your own beneficiaries – assuming that the custodian would not allow you to designate new beneficiaries on the original account.

      Not sure if I’ve answered your question, @Joe. Hopefully I haven’t gang too far agley with my explanation…

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