When siblings inherit an IRA together, the account should be divided into a separate inherited IRA for each of you through a direct trustee-to-trustee transfer, with the split completed by December 31 of the year following the original owner’s death. Two deadlines govern the process: all beneficiaries must be identified by September 30 of that same year, and the separate accounts must exist by December 31. Miss the December 31 date and every sibling is forced onto the distribution schedule of the oldest among you, which usually means a larger annual tax bill for the younger siblings.
Notifying the Custodian and Identifying Beneficiaries
Start by telling the IRA custodian the account owner has died. The custodian will ask for 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.
The custodian uses these documents to confirm that each sibling is a “designated beneficiary” under the tax code. That status controls which distribution rules apply, and the IRS enforces a hard cutoff: all designated beneficiaries must be identified by September 30 of the calendar year following the year the owner died.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements A sibling who was a beneficiary at the date of death but disclaims their share, or takes a full payout, before that September 30 drops out of the calculation.
If beneficiaries aren’t properly identified by September 30, the IRA may be treated as inherited by the estate. That triggers much worse distribution rules. When the owner died before their Required Beginning Date, an estate beneficiary must empty the account within five years. When the owner died on or after their Required Beginning Date, distributions run on the deceased owner’s remaining life expectancy, which is usually shorter than any sibling’s.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements
The same estate treatment applies when the owner never named a beneficiary at all. The will doesn’t help here. If the designation form was blank, the IRA passes according to the custodian’s default rules, which typically send it to the estate, and the siblings lose designated beneficiary status even if the will leaves everything to them equally. There is no way to fix this after death.
Splitting the Account Into Separate Inherited IRAs
Once beneficiaries are confirmed, the original IRA is divided into a new inherited IRA for each sibling. This is 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 transfer must be trustee-to-trustee. The custodian moves each sibling’s share directly from the decedent’s account into a newly created inherited IRA. No check goes to any sibling, and no money passes through a personal bank account. The IRS treats this direct transfer as a non-taxable event rather than a distribution.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions The custodian calculates each sibling’s fractional share of the balance, including any gains or losses accruing between the date of death and the date of transfer.
Each new account must be titled to show the original owner is deceased and the sibling holds the account as beneficiary, not owner. A typical format: “John Doe, deceased, FBO Jane Smith, Beneficiary IRA.” The “FBO” (For the Benefit Of) designation preserves tax-deferred status and signals to the IRS that early withdrawal penalties don’t apply, regardless of the sibling’s age.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The whole split must be complete by December 31 of the year after the owner’s death.2eCFR. 26 CFR 1.401(a)(9)-8 – Special Rules Miss that date and the separate account rule doesn’t apply. Every sibling then takes distributions based on the oldest sibling’s life expectancy, which compresses the timeline and accelerates taxes for the younger siblings.
The 10-Year Distribution Rule
The SECURE Act of 2019 ended the old “stretch IRA” strategy for most non-spouse beneficiaries. In its place is the 10-year rule: the entire inherited IRA balance must be distributed by December 31 of the tenth year after the owner’s death.5Internal Revenue Service. Retirement Topics – Beneficiary Most siblings fall under this rule.
How that 10-year window works depends on whether the original owner died before or after their Required Beginning Date, which is April 1 of the year after the year the owner turned 73.6Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
If the Owner Died Before Their Required Beginning Date
No distributions are required in years one through nine. The money can stay invested and growing tax-deferred for nearly a decade, and you can then withdraw everything in year ten, or take distributions in any amount along the way to spread the tax hit.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements The only firm requirement is a zero balance by December 31 of year ten.
If the Owner Died On or After Their Required Beginning Date
This scenario is more restrictive. Final IRS regulations published in July 2024 (effective for distribution calendar years beginning January 1, 2025) confirmed that annual required minimum distributions must continue during years one through nine of the 10-year period.7Federal Register. Required Minimum Distributions Those annual RMDs are calculated using the IRS Single Life Expectancy Table and the beneficiary’s own age.6Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) The first annual RMD is due by December 31 of the year following the year of death, and the remaining balance must still be zero by the end of year ten.
This is where separate accounts really pay off. Without the split, every sibling’s annual RMD would be calculated using the oldest sibling’s life expectancy factor, producing a larger mandatory withdrawal each year. With separate accounts, a 40-year-old sibling uses their own longer life expectancy, so the required annual payout is smaller and more of the money keeps growing tax-deferred.
Missing a Required Distribution
Failing to take a required distribution triggers an excise tax equal to 25% of the shortfall, meaning the difference between what you should have withdrawn and what you actually did.8Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans If you catch it and withdraw the missed amount within the correction window (generally two years), the penalty drops to 10%.9eCFR. 26 CFR 54.4974-1 – Excise Tax on Accumulations in Qualified Retirement Plans
When a Sibling Can Stretch Distributions Instead
Not every sibling is stuck with the 10-year rule. The IRS recognizes a group called “eligible designated beneficiaries” who can take distributions over their own life expectancy. A sibling qualifies if, at the time of the owner’s death, they meet one of the following:5Internal Revenue Service. Retirement Topics – Beneficiary
- They are not more than 10 years younger than the deceased. This is the most 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 to 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 assistance with at least two of the six activities of daily living or require substantial supervision due to severe cognitive impairment, 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 of disability or chronic illness must be available if challenged, though it does not always have to be submitted to the custodian upfront. Because the difference between a 10-year payout and a life-expectancy payout can mean decades of additional tax-deferred growth, it’s worth confirming eligibility before the September 30 beneficiary determination date.
Disclaiming a Share
A sibling who doesn’t want their portion can disclaim it. A qualified disclaimer is irrevocable, must be in writing, and must reach the custodian within nine months of the original owner’s date of death. The disclaiming sibling cannot have accepted any benefit from the account first. Once disclaimed, the share passes as if that sibling had died before the account owner, moving to the next beneficiary in line under the designation form or the custodian’s default rules.
Disclaimers are often used for tax planning. If one sibling is in a much higher bracket and another is in a much lower one, disclaiming can shift assets to the sibling who will pay less on distributions. And if the disclaimed share flows to someone who qualifies as an eligible designated beneficiary, that person could stretch distributions over their life expectancy rather than being pushed into the 10-year rule. Because a disclaimer cannot be undone, this decision usually deserves a tax professional’s review.
Inherited Roth IRAs Between Siblings
If the account is a Roth IRA instead of a traditional IRA, the mechanics of the split are identical: same September 30 beneficiary date, same December 31 deadline to establish separate accounts, same trustee-to-trustee transfer. The tax treatment is what differs.
The 10-year rule still applies to inherited Roth IRAs for non-eligible designated beneficiaries. The account must be emptied by December 31 of the tenth year after the owner’s death. But if the original owner’s Roth satisfied the five-year aging requirement (at least five tax years since the owner’s first Roth contribution), all distributions come out entirely tax-free, including earnings.1Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements If the five-year period hasn’t been met, withdrawn earnings are taxable as ordinary income, though contributions still come out tax-free.
Because qualified Roth distributions carry no tax, the usual strategy is to delay withdrawals as long as possible within the 10-year window and let the balance grow. Non-spouse beneficiaries cannot convert an inherited traditional IRA into a Roth IRA. That option is available only to a surviving spouse who rolls an inherited IRA into their own personal IRA.
Tax Reporting and Distribution Strategy
Every distribution from an inherited traditional IRA is taxed as ordinary income. The custodian reports each year’s distributions to you and the IRS on Form 1099-R, with Distribution Code 4 in Box 7 to indicate a payment to a beneficiary after the owner’s death.10Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 You report the taxable amount on your Form 1040, where it increases your adjusted gross income.
The custodian must withhold 10% of each distribution 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 withholding or ask for a higher percentage. Waiving does not eliminate the tax; it just means you owe it through estimated payments or withholding from other income. State rules vary, so check your state’s requirements.
The 10-year rule gives you flexibility (assuming the owner died before their Required Beginning Date). Taking everything in year ten is legal but usually costly, because one large distribution can push you into a much higher bracket. Spreading withdrawals across multiple years generally saves thousands over the decade. When siblings are in different situations, each one can plan independently: a sibling in graduate school or between jobs might take more in low-income years, while a sibling at peak earnings takes only what’s required and defers the rest.
If the deceased owner’s estate was large enough to owe federal estate tax, siblings receiving distributions may also be entitled to an “income in respect of a decedent” deduction under IRC ยง691(c), which offsets some of the income tax on distributions and prevents the same dollars from being taxed twice.12Internal Revenue Service. Revenue Ruling 2005-30 Most inherited IRAs won’t trigger this because the federal estate tax exemption is high, but for large accounts it can be meaningful.
If a Sibling Dies Before Emptying Their Inherited IRA
When a sibling who inherited an IRA dies before draining the account, the remaining balance passes to that sibling’s named successor beneficiary. The successor does not get a fresh 10-year clock. The IRS does not allow extending the payout beyond what was available to the original beneficiary.
In practice, the successor must finish emptying the account by the same December 31 that applied to the deceased sibling, which is the tenth anniversary of the original IRA owner’s death.13Ascensus. Successor Beneficiaries: What Are Their Distribution Options? If the sibling who inherited the account was an eligible designated beneficiary using 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 is a successor beneficiary also cannot treat the account as their own or recalculate their own life expectancy the way a spouse who is a primary beneficiary can.
Naming a successor beneficiary on each separate inherited IRA is easy to forget and important not to. Without one, the account defaults to the custodian’s rules, which typically direct it to the deceased sibling’s estate, restoring the same unfavorable treatment that applies to non-individual beneficiaries.