Inherited an IRA With Siblings? Here's What Executors Must Know
Splitting an inherited IRA among multiple beneficiaries isn't as simple as cashing it out. Executors face specific IRS rules that matter.
When a parent or loved one dies and leaves behind an IRA shared among several heirs, the instinct for many executors is to simply liquidate the account and divide the proceeds. It's an understandable impulse — clean, fast, and seemingly fair. But that approach can trigger an unexpectedly large tax bill, and the IRS has a more structured process in mind for inherited retirement accounts.
The core question many co-inheriting families face is whether the executor must establish separate inherited IRA accounts for each beneficiary before any distributions can be made. Under IRS rules, when multiple people inherit a single IRA, the account generally needs to be split into individual inherited IRAs — one per beneficiary — if each person wants to manage their own distributions and tax exposure independently. This is not merely a procedural formality; the timeline for completing that split matters significantly for determining each heir's required minimum distributions.
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The rules governing inherited IRAs have grown considerably more complex since the SECURE Act and its follow-up legislation reshaped the landscape for non-spouse beneficiaries. Most adult children and non-spouse heirs now fall under a 10-year rule, meaning the entire inherited IRA balance must be withdrawn within a decade of the original owner's death. How and when those withdrawals happen within that window can have real consequences for each beneficiary's annual taxable income — making the decision to simply "cash it out" immediately a potentially costly one.
For executors specifically, the role carries legal and fiduciary weight that goes beyond personal preference. An executor cannot unilaterally decide to liquidate an inherited IRA without understanding whether that action aligns with the decedent's wishes, the account's beneficiary designations, and applicable tax law. In most cases, the financial institution holding the IRA will require proper documentation and may mandate the creation of separate inherited accounts before processing any distributions to multiple heirs.
The bottom line: cashing out an inherited IRA shared among siblings is possible, but doing so without first understanding the tax implications and procedural requirements can cost heirs thousands of dollars. Consulting a tax professional or estate attorney before taking action is rarely a wasted step. Continue reading at MarketWatch.com.
