Splitting Inherited IRA’s

In the case of an IRA, often it is desirable to split an account into two (or more) accounts in order to better accommodate a distribution plan upon the death of the primary owner of the account. 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, based either upon their own age or the age of the decedent. In most cases when the beneficiary is younger than the decedent, it is advantageous to stretch those payments out over the longer period of time.

If there is more than one beneficiary, unless the IRA is split, the Required Minimum Distributions will be based upon the attained age of the “designated beneficiary” – who is the oldest beneficiary as of September 30 of the year following the year of death.

If you’ve 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. The IRA must be split by December 31 of the year following the year of death.

Note: bear in mind that you don’t have to have the IRA split into separate IRAs for each beneficiary by September 30 of the year following the year of death – this is just the administrative date for determination of the designated beneficiary. In the event that the IRA is split 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 “FBO” owner of the account.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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