3 beneficiaries – Are accounts usually split up?
I’m so often thinking of nuances of tax law that I miss the forest for the trees… This is a more practical question!
Scenario:
Husband has 3 beneficiaries to his IRA (wife, 2 kids). Husband dies in 2024.
I realize wife cannot be treated as a SOLE spouse beneficiary unless they SPLIT UP the accounts (by Dec 31st 2025, if my memory serves me correctly). But what if they don’t really WANT to separate the IRA? (the 17 & 23 year old kids wouldn’t want the responsibility, the wife plans to take out more than RMD amounts anyways…).
First of all, is this practical –in fact is it even allowed? (How would the Plan handle tax forms to the recipients?)
If it IS allowed (an Inherited IRA account for the benefit of 3 beneficiaries), then can the wife’s RMD’s be calculated as her being an ELIGIBLE designated beneficiary? (in other words, can she stretch? And the 17 year old too initially? ) Or would this be based on the eldest’s Life expectancy, like a multi-beneficiary trust would be?– Honestly I know almost NOTHING about multi-beneficiary trusts, especially under the new rules. I may have read that if even ONE beneficiary isn’t an EDB, than none are (excepting chronically ill/disabled maybe)… Anyways this scenario has the three beneficiaries, not a trust as a beneficiary.
Thanks so much!
Permalink Submitted by Alan - IRA critic on Fri, 2025-06-20 21:33
While the account may not be split on time due to neglect, the first requested distribution from any beneficiary will trigger the creation of a separate account for that beneficiary. In your example, it would not matter which of the 3 beneficiaries acted first. And once the second beneficiary acts, the third who did nothing would have a separate account because they are the only beneficiary left on the original IRA account.
Almost all IRA custodians operate with actual separate accounts, which the single beneficiary SSN on that account. Conversely, qualified plans use “separate accounting” which segregates each beneficiary’s interest within the plan, and that results in pretty much the same end result as the IRA custodian uses, but without a separate account number.
While a separate inherited IRA account can be created anytime, for those without one by the end of the year following the year of death, the RMD will be based on the oldest of the beneficiaries who did not create a separate account by the deadline. If the surviving spouse in your example creates their account by the deadline, they can be treated as a sole spousal beneficiary which for example would enable them to delay RMDs until the deceased spouse would have reached RMD age. They could also assume ownership of their inherited IRA at anytime.
In other words, for a time the IRS wording suggested that ALL beneficiaries must create separate accounts by the deadline for any of them to qualify, but the new Regs make it clear that those who meet the deadline get the separate account advantages even though others may not act in time.
Most of these rules are on p 58914 of the Fed Register Regs you referred to before.
If an otherwise EDB remains without a separate account with another beneficiary by the separate account deadline, they lose EDB status and fall under the 10 year rule. Therefore, it is probably a good thing that few spouses name multiple beneficiaries on the same IRA, because that could be costly for all of them if they overlook the separate accounts deadline.
*That said, in your example one of the beneficiaries is a minor child of the decedent, ie an EDB. In this case there is a special rule that states that until the minor reaches age 21, they are still EDBs even if there are other non EDB beneficiaries remaining that did not create their own separate accounts, thus protecting the minor’s EDB status.
Similarly, if the IRA beneficiaries include a charity that is NOT paid off before 9/30 of the following year, and there remain other beneficiaries without separate accounts on 12/31, the remaining beneficiaries become subject to either the 5 year rule (death before RBD) or the ghost LE for death post RBD.
Most of the bad outcomes in multiple beneficiary situations arise from failing to meet the separate account deadline due to neglect.
Permalink Submitted by Valerie Hadley on Sun, 2025-06-22 22:09
Thank you again! Okay INTERESTING…
So may I also ask –
If the accounts are NOT timely separated – but if both kids were minors – in that case, all three beneficiaries (in theory) are EDB’s. If ALL are EDB’s – does the spouse still “lose” their EDB status? (I’m differentiating here between SOLE spouse status and EDB status.)
And however…
When in a multi-beneficiary situation, and accounts don’t get separated on time – there’s that general rule that RMD’s would be based upon the ELDEST beneficiary. But what if the deceased IRA owner didn’t meet their RBD? Especially let’s say there’s no minor child involved – Just the spouse (say 12 years younger than deceased) and a 25 year old son. I presume spouse loses EDB AND Sole spouse status because of the son (non-eligible) and lack of timely separating the accounts. Would it then SIMPLY be the 10 year rule in this case? (With no RMD’s years 1-9 since the owner hadn’t met RBD?) And would this answer be any different in a multi-beneficiary TRUST than with multi direct beneficiaries?
Thank you!!
Permalink Submitted by Alan - IRA critic on Mon, 2025-06-23 13:30
If both children were minors, they each remain EDBs until their age 21, after which the 10 year rule kicks in for each. While EDBs, their RMDs are based on the oldest beneficiary (spouse) if separate accounts are not established by the deadline. If nothing is done by any of these beneficiaries, once the oldest child reaches 21 and is no longer an EDB, the spouse is also no longer treated as an EDB, although the spouse can still take a distribution and roll over amounts in excess of the beneficiary RMD to her own IRA.
On the other hand, if any distribution is made to any of these beneficiaries, a separate account will be created at that time for the distributing beneficiary, although it might be after the separate account deadline, in which case the separate account would not change the RMD calculation. Therefore, failure of each to create a separate account by the deadline creates quite a confusing RMD mess.
“And, however” question – you are correct that the 10 year rule would apply to both the spouse and the age 25 child, with no annual RMDs in years 1-9.
A multi beneficiary trust is treated as an EDB, therefore if an IRA was left to a surviving spouse and also a multi beneficiary trust, and the spouse took no action, the spouse would still be an EDB, but not a sole spouse beneficiary.
Permalink Submitted by Valerie Hadley on Fri, 2025-06-27 13:27
Thank you again Alan!! I’m just finishing a PDF Inherited IRA RMD flowchart, including successor beneficiaries (for taxtools.com) – I think you’d find it interesting! – is there anyway I could share it with you? (without sharing with the whole forum)