Take action now to safeguard and maximize the value of your inherited IRA.
Suppose a parent passes away, designating you and your sister as beneficiaries of their IRA. At first, it may seem like a straightforward gift to simply accept, but soon reality sets in that decisions must be made about how to divide the account fairly. Can one sibling delay withdrawals while the other begins taking them immediately? How will taxes be handled?
Inheriting an IRA with siblings can be a valuable financial opportunity, but it comes with complexities that can make it feel overwhelming. Unlike many other assets, which can be split evenly, an inherited IRA is governed by specific rules. Failing to follow them can result in penalties, unnecessary taxes, and even lost growth potential.
While splitting an IRA between siblings doesn’t have to be contentious, disputes are not uncommon. Siblings may disagree on how the account should be divided or on how to manage the account. Left unresolved, these conflicts can delay the process and create legal complications that could affect your inheritance.
Fortunately, with legal guidance from the outset, disputes between siblings can be efficiently navigated. Generally, each sibling will have their own inherited IRA account and manage it according to their personal financial goals while adhering to IRS rules. When handled thoughtfully, an inherited IRA can continue to grow, providing meaningful benefits to each sibling over time.
To maximize the value of an inherited IRA, a strategic approach and understanding of the rules are essential. For those with limited financial knowledge, working with a probate attorney can ensure your inheritance is managed properly and that each sibling gets the full benefit of the account.
What Is an Inherited IRA?
An inherited IRA is a retirement account left to one or more beneficiaries after the original account holder dies. Unlike other assets or financial accounts, an inherited IRA is governed by specific IRS rules that affect taxes, withdrawal timelines, and distribution strategies.
Inherited IRA rules differ depending on the category the beneficiary falls under. Spouses generally have more flexibility and control over how they manage an inherited IRA, while non-spouse beneficiaries — such as children, grandchildren, or siblings — face stricter guidelines.
What Is the Required Minimum Distribution for an Inherited IRA?
A required minimum distribution (RMD) is the minimum amount a beneficiary must withdraw from an inherited IRA each year. RMD rules depend on factors such as the type of IRA and the beneficiary’s age and relationship to the account holder.
Failing to take RMDs on time can trigger substantial IRS penalties, as well as limit long-term growth, making it essential to understand the rules that apply to you. Because these rules can be complex, consulting a probate attorney or financial professional before deciding on a distribution strategy is strongly recommended.
What Is the 10-Year Rule for Inherited IRAs?
The 10-year rule for inherited IRAs requires non-spouse beneficiaries to fully withdraw an inherited IRA within 10 years of the account holder’s death.
While beneficiaries can often choose the timing of withdrawals during that period, failing to empty the account by the deadline can lead to unnecessary taxes and penalties. Staying organized and planning withdrawals proactively is critical to maximizing your inheritance.
What Is an Eligible Designated Beneficiary?
An eligible designated beneficiary (EDB) is a beneficiary who qualifies for special distribution rules that allow them to stretch withdrawals over their lifetime.
Distributions for EDBs are based on IRS life expectancy tables, which estimate how long a beneficiary is expected to live. This approach allows the account to grow tax-deferred while withdrawals are spread out gradually.
Determining whether you qualify as an EDB is essential, as it determines whether you can use life-expectancy distributions or are subject to the 10-year rule.
Eligible designated beneficiaries include:
- Minor children
- Chronically ill or disabled beneficiaries
- Beneficiaries no more than 10 years younger than the decedent
Can an Inherited IRA Be Split Between Siblings?
Yes, an inherited IRA can be divided among siblings, so long as they are designated as beneficiaries of the account. This means siblings do not need to manage the account jointly; each can control their own share and create a distribution strategy that aligns with their personal financial goals.
In fact, splitting an inherited IRA is often the best approach to avoid disputes and protect each sibling’s inheritance. For instance, if two siblings managed an inherited IRA together and one forgot to withdraw their required minimum distribution, both shares could face IRS penalties and unnecessary taxes. By splitting the account, any mistakes or missteps would only affect the responsible sibling’s portion, leaving the other sibling’s share intact.
That said, it is important to note that there are strict timelines that apply in order to split an inherited IRA between siblings, as the split generally must occur by December 31 of the year following the original owner’s death.
How Is an Inherited IRA Split Between Siblings?
The method for splitting an inherited IRA depends on how the siblings are designated as beneficiaries.
- Direct beneficiary designation: If the siblings are directly named on the IRA, they can divide the account themselves and establish their own inherited IRA accounts.
- Estate or trust designation: If the IRA is inherited through a will or trust, the executor or trustee must divide the account according to the estate plan.
Regardless of the scenario, careful attention is required to ensure each sibling’s share is accurate and IRS rules are followed. Timing and documentation are particularly critical, as IRS deadlines must be met and proper records kept for tax reporting.
Below are the key steps for splitting an inherited IRA between siblings.
1. Open Separate Inherited IRA Accounts
The first step is for each sibling to open their own inherited IRA account. Once established, each beneficiary can independently manage distributions and taxes according to their needs.
Separate accounts also clearly document each sibling’s portion, reduce the likelihood of disputes, and ensure that control over the funds is properly divided.
2. Split the Inherited IRA by the Required Deadline
It is crucial to complete the split by the end of the year following the account holder’s death. For example, if the account holder died in August 2025, the inherited IRA must be split by December 31, 2026. Missing this deadline can limit the distribution options available to you.
The division should be thoroughly documented, detailing the amount each sibling received and the date of the split, to prevent disputes and tax complications.
3. Select the Distribution Strategy that Best Fits Your Needs
Once separate accounts are established, consulting with an attorney is highly recommended to determine the best distribution strategy to meet your financial goals.
Your withdrawal options depend on whether the original account holder had already been taking RMDs when they died.
For non-eligible designated beneficiaries:
- If RMDs had already started: You must continue taking annual RMDs for the first nine years and fully deplete the account by the end of the 10th year.
- If RMDs had not yet started: No RMDs are required, but you must fully deplete the account by the end of the 10th year.
Eligible designated beneficiaries have additional flexibility, allowing withdrawals based on life expectancy, which may extend beyond 10 years, if they choose.
Do Siblings Owe Taxes on Inherited IRA Withdrawals?
Whether siblings owe taxes on withdrawals from an inherited IRA depends largely on the type of IRA inherited. Traditional and Roth IRAs are treated differently under IRS rules, and each carries its own tax implications.
Understanding which type of account you are inheriting is critical to planning withdrawals strategically, avoiding preventable taxes and remaining in compliance with IRS regulations.
Traditional IRAs
Withdrawals from an inherited traditional IRA are generally treated as taxable income, meaning beneficiaries must report distributions on their federal — and potentially even their state — income tax returns for the year in which the funds were received.
A beneficiary’s tax liability on inherited IRA withdrawals is determined by their individual income tax bracket. Large withdrawals can increase their taxable income, potentially pushing them into a higher tax bracket and resulting in a greater overall tax owed.
Importantly, delaying withdrawals to reduce taxes is not always an option, as beneficiaries must follow the appropriate IRS distribution rules. Failure to do so can result in significant IRS penalties and unnecessary tax obligations.
For this reason, beneficiaries are strongly advised to consult a tax professional or financial adviser who can help them develop a withdrawal strategy that minimizes taxes while still complying with IRS rules.
Roth IRAs
Withdrawals from an inherited Roth IRA are generally tax-free, provided the account has been open for at least five years prior to the original account holder’s death. When this requirement is met, both contributions and earnings can usually be withdrawn without income tax.
However, even though distributions may not create a tax burden, beneficiaries must still follow the applicable IRS withdrawal rules. Abiding by these requirements ensures beneficiaries retain the full tax-free benefits of the Roth IRA while avoiding penalties for noncompliance.
Common Disputes Arising From Inherited IRA Splits Between Siblings
Even when siblings get along, dividing an inherited IRA can become complicated. Siblings may have different financial goals, different interpretations of the decedent’s wishes, or disagreements over how quickly funds should be withdrawn. If these disputes are not addressed promptly and properly, they can lead to delays, tax penalties, frozen accounts, or even court involvement.
Below are some of the most common conflicts that arise when siblings jointly inherit an IRA.
Division Disputes
Division disputes often occur when the terms of a will or trust are unclear, when the estate calls for unequal distributions or when one sibling wants to manage the inherited IRA jointly while others prefer to separate it.
Conflicts also may arise when the account passes through the estate rather than through a clear beneficiary designation, which can make it harder to determine exactly who is entitled to what, especially when beneficiaries are left unequal shares.
In many cases, division disputes can be resolved through open communication and the guidance of a probate attorney, but in more contentious situations, court involvement may be required.
Beneficiary Disputes
Beneficiary disputes can occur when the IRA and estate planning documents appear to conflict, such as when the beneficiary designation names one person to inherit the account and the will names someone else They can also occur if an unintended beneficiary, such as an ex-spouse, is designated on the account or if a named beneficiary dies before the account holder, without a contingent beneficiary having been designated.
Although IRA beneficiary designations generally override instructions in a will, disputes over interpretation or fairness may still arise and sometimes require legal intervention.
Incomplete or Missing Paperwork
Administrative issues are common when essential documents are missing or incomplete. For example, the decedent may never have signed the beneficiary forms, or the inherited IRA may remain jointly titled because the siblings did not open separate accounts in time.
These types of mistakes can cause delays, limit distribution options, or even trigger tax penalties if deadlines pass while the account remains in limbo.
While such challenges can often be resolved through documentation and assistance from a financial institution or attorney, they are best prevented by ensuring proper paperwork is completed and updated during the original account holder’s lifetime.
Inherited IRA Split Between Siblings FAQs
Still confused about how an inherited IRA split between siblings works? Consult the frequently asked questions below for additional guidance.
What happens to an IRA with no beneficiary after death?
If no beneficiary is designated, an IRA generally becomes part of the decedent’s probate or intestate estate and is administered by the executor or administrator in accordance with the will or intestacy laws.
This outcome, however, is not ideal, as it may limit tax advantages and require faster withdrawals than if a beneficiary had been properly named.
Why is it important for siblings to create separate inherited IRA accounts?
Creating separate inherited IRA accounts gives each sibling control and flexibility over their own distribution strategy, allowing them to manage withdrawals in a way that aligns with their financial needs.
It also prevents one sibling’s mistake — such as forgetting to take a required minimum distribution — from negatively impacting the others.
If the IRA is not split, it is typically treated as a single inherited account by the IRS, which can complicate withdrawals and potentially trigger tax penalties.
Are siblings required to follow the same distribution schedule when inheriting an IRA?
Once siblings establish separate inherited IRAs, each can generally follow their own withdrawal timeline based on their personal financial situation and the IRS rules that apply to them. This allows for more individual flexibility in planning.
What if an IRA wasn't updated after divorce or remarriage?
If an account holder fails to update their IRA beneficiary designation after a divorce or remarriage, the original designation usually remains in force — meaning an ex-spouse or unintended beneficiary may still inherit the account, even if the will states otherwise.
These situations often lead to disputes and may require legal intervention to determine who is entitled to the funds.
Still confused about how to handle an inherited IRA split between siblings?
Managing an inherited IRA can be confusing, especially when multiple siblings are involved or there are conflicts. If you have questions about tax implications, distribution strategy, or how to handle a dispute, our probate attorneys are here to guide you. Call us today to get the assistance you need.
