When siblings inherit an IRA together, the account needs to be divided into a separate inherited IRA for each person through a direct trustee-to-trustee transfer, and the split must be finished by December 31 of the year after the original owner’s death. Miss that date and every sibling is forced to use the distribution schedule tied to the oldest among them, which usually means larger yearly withdrawals and a bigger tax bill for the younger ones. The mechanics are administrative, but the deadlines are unforgiving.
The Deadlines That Control the Split
Two dates matter more than anything else in the file.
The first is September 30 of the calendar year following the year the account owner died. By that date, all designated beneficiaries must be identified on the custodian’s records. Anyone who was named at the date of death but is no longer a beneficiary by that September 30 (because they disclaimed or were fully cashed out) drops out of the calculation. If the beneficiaries aren’t properly identified in time, the IRA can be treated as if it passed to the estate rather than to individuals, which triggers much less favorable rules: a five-year payout if the owner died before their Required Beginning Date, or distributions based on the deceased owner’s remaining life expectancy if they died on or after it.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements
The second is December 31 of the year following the year of death. That’s when the separate inherited IRAs must be established.2eCFR. 26 CFR 1.401(a)(9)-8 – Special Rules If the accounts aren’t split by then, the IRS won’t apply the separate account rule, and every sibling’s required distributions get calculated using the oldest sibling’s life expectancy factor. That compresses the payout schedule and accelerates the tax hit for everyone else.
If There’s No Beneficiary Designation on File
When the original owner never completed a beneficiary designation form, the IRA passes according to the custodian’s default rules, which typically send it to the estate. In that situation, siblings aren’t treated as designated beneficiaries at all, even if the will divides everything equally among them. The estate becomes the beneficiary, and either the five-year rule or the deceased owner’s remaining life expectancy controls distributions depending on when the owner died relative to their Required Beginning Date. There’s no way to fix this after death.
How to Actually Split the Account
Start by notifying the IRA custodian of the death. You’ll need a certified copy of the death certificate, government-issued photo ID for each sibling, and the beneficiary designation form on file. Some custodians also require a Medallion Signature Guarantee, which is obtained in person at a financial institution.
Once the custodian confirms every designated beneficiary, the single IRA is divided into separate inherited IRAs, one per sibling. The rule that allows this is called the separate account rule, and it exists so each beneficiary can manage their own distribution timeline and tax liability independently.2eCFR. 26 CFR 1.401(a)(9)-8 – Special Rules
The division has to happen as a direct trustee-to-trustee transfer. The custodian calculates each sibling’s fractional share of the balance, including gains or losses between the date of death and the date of transfer, and moves that share straight into a newly created inherited IRA. No check is issued to any sibling, and no funds pass through anyone’s personal account. The IRS treats this direct transfer as a non-taxable event, not a distribution.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Each new account must be titled to show that the original owner is deceased and that the sibling holds the account as a beneficiary rather than as personal money. A typical title reads something like “John Doe, deceased, FBO Jane Smith, Beneficiary IRA.” The “for the benefit of” language preserves the tax-deferred status and signals to the IRS that the 10% early withdrawal penalty doesn’t apply regardless of the sibling’s age.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The 10-Year Rule After the Split
Once each sibling has their own inherited IRA, the SECURE Act of 2019 governs how quickly the money has to come out. For most non-spouse beneficiaries, the entire balance must be distributed by December 31 of the tenth year following the year of the owner’s death.5Internal Revenue Service. Retirement Topics – Beneficiary What happens inside that 10-year window depends on whether the original owner died before or after their Required Beginning Date, which is April 1 of the year after the year they turned 73.6Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Under SECURE 2.0, that age rises to 75 starting in 2033.
If the Owner Died Before Their Required Beginning Date
No annual distributions are required in years one through nine. Each sibling can leave the money invested and growing tax-deferred, then pull the whole balance in year ten, or take money out in any pattern along the way.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements The one hard rule is that the balance hits zero by December 31 of year ten.
If the Owner Died On or After Their Required Beginning Date
Annual required minimum distributions must continue in years one through nine, based on the beneficiary’s own age using the IRS Single Life Expectancy Table.7Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)Required Minimum Distributions The first annual RMD is due by December 31 of the year following the year of death, and the account still has to be empty by the end of year ten.
This is where the separate account rule earns its keep. A 40-year-old sibling using her own life expectancy factor takes a much smaller annual RMD than she would if the calculation were tied to a 65-year-old sibling’s shorter life expectancy. Split accounts mean each sibling runs their own numbers.
The Penalty for Missing an RMD
Missing a required distribution triggers an excise tax equal to 25% of the shortfall.8Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans Catching it and withdrawing the missing amount within the correction window (generally two years) reduces the penalty to 10%.9eCFR. 26 CFR 54.4974-1 – Excise Tax on Accumulations in Qualified Retirement Plans
When a Sibling Can Escape the 10-Year Rule
Some siblings qualify as “eligible designated beneficiaries,” which lets them stretch distributions over their own life expectancy instead of clearing the account within a decade. A sibling qualifies at the time of the owner’s death if any one of these applies:5Internal Revenue Service. Retirement Topics – Beneficiary
- They are not more than 10 years younger than the deceased sibling. This is the common path for siblings close in age.
- They are disabled, meaning unable to engage in any substantial gainful activity because of a medically determinable condition expected to result in death or be long-lasting and indefinite. Receiving Social Security disability benefits at the time of the owner’s death satisfies this automatically.
- They are chronically ill, meaning they need help with at least two of the six activities of daily living, or require substantial supervision due to severe cognitive impairment, as certified by a licensed healthcare professional.
An eligible designated beneficiary can take distributions over the longer of their own life expectancy or the deceased owner’s remaining life expectancy. Documentation supporting disability or chronic illness has to be available if questioned, though it doesn’t necessarily go to the custodian. Because the gap between the 10-year rule and life-expectancy distributions can mean decades of additional tax-deferred growth, verifying eligibility before the September 30 date is worth the effort.
Disclaiming a Share
A sibling who doesn’t want or need their portion can disclaim it. A qualified disclaimer is irrevocable, must be in writing, and must be delivered to the custodian within nine months of the owner’s date of death. The disclaiming sibling cannot have already accepted any benefit from the account, so taking a distribution and then trying to hand back the rest doesn’t work. A valid disclaimer treats that sibling as if they died before the account owner, and the share moves to the next beneficiary in line under the beneficiary form or the custodian’s default rules.
The tax planning angle is real. If one sibling sits in a high bracket and another in a low one, disclaiming can shift assets to whoever will pay less on distributions. If the disclaimed share flows to someone who qualifies as an eligible designated beneficiary, that person can stretch distributions instead of being locked into 10 years. Because a disclaimer can’t be undone, a tax professional should be involved before filing it.
Inherited Roth IRAs Work the Same Way Mechanically
If the account is a Roth rather than a traditional IRA, the split process is identical: same September 30 beneficiary determination, same December 31 deadline for separate accounts, same trustee-to-trustee transfer. The difference is on the tax side. The 10-year rule still applies for non-eligible designated beneficiaries. But if the original owner’s Roth met the five-year aging requirement (at least five tax years since the owner’s first Roth contribution), all distributions come out tax-free, including earnings.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements If the five-year period hasn’t been met, earnings are taxable as ordinary income, though the original contributions still come out tax-free. Because qualified Roth distributions carry no tax, letting the money ride as long as possible inside the 10-year window is usually the right move.
One boundary worth naming: non-spouse beneficiaries cannot convert an inherited traditional IRA into a Roth. Only surviving spouses who roll an inherited IRA into their own personal IRA have that option.
Taxes and How to Time Distributions
Every distribution from an inherited traditional IRA is taxed as ordinary income. The custodian reports each year’s payouts to you and to the IRS on Form 1099-R, with Distribution Code 4 in Box 7 to show the payment went to a beneficiary after the owner’s death.10Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 The taxable amount goes on your Form 1040 and increases your adjusted gross income.
The custodian is required to withhold 10% for federal income tax unless you elect otherwise.11Internal Revenue Service. Revenue Ruling 2018-17 – Section 3405 Special Rules for Pensions, Annuities, and Certain Other Deferred Income You can waive it or ask for more. Waiving doesn’t eliminate the tax, only shifts responsibility to quarterly estimated payments or withholding from other income. State income tax rules vary.
When the owner died before their Required Beginning Date and no annual RMD is required, the 10-year window gives each sibling real flexibility. Pulling the whole balance in year ten is legal but often lands you in a much higher bracket for that one year. Spreading distributions across multiple years usually saves thousands. And because each sibling controls their own account after the split, one sibling in graduate school can take larger distributions in low-income years while another at peak earnings takes little until retirement.
Name a Successor Beneficiary on Each Account
If a sibling dies before emptying their inherited IRA, the remaining balance goes to that sibling’s own named successor beneficiary. The successor doesn’t get a fresh 10-year clock. The IRS won’t extend the payout beyond what the original sibling had available, so the successor has to finish emptying the account by the same December 31 that would have applied to the deceased sibling.12Ascensus. Successor Beneficiaries: What Are Their Distribution Options? If the original sibling was an eligible designated beneficiary taking life-expectancy distributions, the successor gets a 10-year period measured from the sibling’s date of death, which is more generous but still not a new stretch. A spouse who becomes a successor beneficiary also cannot treat the account as their own the way a spouse who was the primary beneficiary can.
Naming a successor on each separate inherited IRA is easy to overlook. Without one, the account defaults to the custodian’s rules, which usually send it to the deceased sibling’s estate and bring back the same unfavorable distribution treatment that applies to non-individual beneficiaries.