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.