Can you split an inherited IRA into two accounts?
Inheriting an IRA can be a significant financial windfall, but it also comes with important decisions to make. One common question that arises is whether it’s possible to split an inherited IRA into two separate accounts. The answer to this question depends on several factors, including the type of IRA, the rules governing inherited IRAs, and the wishes of the original IRA owner.
Understanding Inherited IRAs
An inherited IRA is an individual retirement account that has been passed down to a beneficiary upon the death of the original account holder. There are two main types of inherited IRAs: a traditional IRA and a Roth IRA. The rules governing each type of inherited IRA can vary, which affects the ability to split the account.
Splitting a Traditional IRA
For a traditional IRA, the IRS allows for the splitting of an inherited IRA into two separate accounts, provided that the original IRA owner had designated more than one beneficiary. This can be beneficial if the beneficiaries have different life expectancies or financial needs. To split a traditional IRA, the following steps must be followed:
1. Contact the IRA custodian to request the splitting of the account.
2. Provide the custodian with the necessary information about the second beneficiary, including their name, Social Security number, and tax ID number.
3. The custodian will then create a new IRA account for the second beneficiary and transfer the appropriate amount of funds from the original inherited IRA.
It’s important to note that any taxes owed on the distributed funds will be the responsibility of the beneficiaries. Additionally, the required minimum distributions (RMDs) for each account will be calculated separately based on the life expectancy of each beneficiary.
Splitting a Roth IRA
In the case of a Roth IRA, splitting the inherited account is generally not allowed. The IRS does not permit the splitting of a Roth IRA into two separate accounts, even if the original IRA owner had designated multiple beneficiaries. This is because the tax benefits of a Roth IRA are designed to be used by the original account holder and cannot be transferred to multiple beneficiaries.
Considerations and Wishes of the Original IRA Owner
It’s also essential to consider the wishes of the original IRA owner. If the IRA owner had a specific plan or request for how the inherited IRA should be managed or distributed, it’s important to adhere to those instructions. This may involve consulting the IRA owner’s estate planning documents or speaking with a financial advisor.
In conclusion, while it is possible to split an inherited traditional IRA into two accounts under certain circumstances, this is not the case for inherited Roth IRAs. Understanding the rules and considering the original IRA owner’s wishes will help ensure that the inherited IRA is managed appropriately and in compliance with the law.
