Inherited IRA Split Three Ways: What Executors Must Know
Splitting an inherited IRA among siblings isn't as simple as cashing out. Here's what the executor needs to do first.
You inherited an IRA with two siblings and now you're the executor. Your first instinct might be to just cash the whole thing out and split it three ways. Pump the brakes — that move could cost all three of you a serious tax hit in a single year.
The IRS has specific rules about inherited IRAs, and how you handle the split matters enormously. Generally, beneficiaries can establish separate inherited IRA accounts, each in their own name, which allows each sibling to manage distributions on their own timeline and potentially spread the tax burden across multiple years.
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As executor, you don't necessarily have to do all the heavy lifting yourself, but the process typically does require the financial firm holding the original IRA to divide the account into separate inherited IRAs for each beneficiary. That means yes — in most cases, three new inherited IRA accounts need to be opened, one per sibling.
Why does that matter for your wallet? Because if the IRA is simply cashed out in one lump sum and split, all of that money becomes ordinary income in the same tax year for whoever receives it. Separate inherited IRAs let each beneficiary control their own withdrawals and tax exposure. Under current rules, most non-spouse beneficiaries must drain inherited IRAs within 10 years, but the timing of withdrawals within that window is often flexible.
Bottom line: don't rush to cash out. Talk to the custodian and a tax advisor before making any moves. The structure you choose now locks in the tax consequences for all three of you. Continue reading at MarketWatch.com
