Timing of IRA Split
IRA owner wants to split IRA into separate accounts for multiple beneficiaries of different classes (two DBs and one EBD) so that the EBD can use the stretch. However, he would also like to keep the assets in one account for as long as possible for convenience and costs. I understand that the owner (during lifetime) and the beneficiaries (after death by agreement) may split the account, Family discord exists however so agreement may be problematic.
The rule that a split must occur prior to December 31st of the year following the year of the IRA owner’s death only seems applicable to the agreement by beneficiaries. What I can’t seem to confirm is whether the owner (with the consent of the custodian) can execute a beneficiary designation form that directs the account split upon the owner’s death. Is execution of the form deemed to be a split by the owner during his lifetime even if multiple accounts are not created?
Permalink Submitted by Alan - IRA critic on Tue, 2021-02-16 00:04
Such agreements are not necessary. The separate account rules were not changed by the Secure Act, therefore the EDB simply needs to create their separate inherited IRA by the 12/31 deadline. A separate account will not be created by the custodian until the death cert and beneficiary info including SSN is provided. If the others are not EDBs there is no rush except they will not have named a successor beneficiary, but when one of them wants a distribution that beneficiary will have to create their own separate account. Meanwhile, the EDB can begin life expectancy RMDs in the year following the owners’s death.
What happens if the EDB fails to establish the separate account by the deadline is anyone’s guess. Most likely the EDB will default to the 10 year rule like the rest. In short, the EDB should be told about the importance of establishing the separate account by the deadline.
The joint requirement of the beneficiaries to complete the year of death RMD if the owner did not complete it before passing is unchanged.