Inherited an IRA With Siblings? Here's What Executors Must Know
Splitting an inherited IRA three ways isn't as simple as cashing out. Executors have real obligations — and real tax traps to avoid.
You're the executor, your parent just passed, and now you and your two siblings are staring down an inherited IRA. Your first instinct might be to cash it out and split the check three ways. Pump the brakes — that move could trigger a massive tax bill nobody saw coming.
When multiple beneficiaries inherit a single IRA, the IRS doesn't just let you divvy it up like a savings account. The account typically needs to be split into separate inherited IRAs for each beneficiary — and that process has a deadline. Miss it, and all three of you could get locked into the same distribution schedule, which may not work in everyone's favor.
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As executor, you're not automatically the one calling the shots on the IRA itself. An IRA passes outside of probate, which means it goes directly to named beneficiaries — not through the will you're administering. Your authority as executor doesn't give you unilateral power over how that account is handled. Each sibling has a say in their own inherited IRA once it's properly split.
Cashing out immediately is technically an option, but it's rarely the smart play. Every dollar withdrawn gets added to your ordinary income for the year. Depending on the size of the account, that could shove all three of you into a higher tax bracket in one shot. Stretching distributions over the IRS-allowed window — generally up to 10 years for non-spouse beneficiaries under current rules — usually makes more financial sense.
Bottom line: yes, the firm likely needs to create three separate inherited IRAs. It's paperwork, but it protects each sibling's flexibility and tax position. Don't let impatience cost you thousands. Continue reading at MarketWatch.com
