Inherited IRA splitting among beneficiary question

Submitted by Austin Brown on Tue, 2025-05-27 14:56

We have a client whose 90 year old mother died in March 2025. The father already passed and the client and his one sibling are each 50% beneficiaries on the IRA. The mother was the original owner of the IRA. The IRA custodian (Wells Fargo) has marked the IRA as having a deceased account owner, and the client/sibling have yet to create the inherited IRAs into which the IRA assets will be split. For 2025, the mother had not taken any of her RMD prior to passing and no distributions have occurred in the account since her death. Client and sibling are both under their respective RMD ages, but there is a 10 year difference in age between the client and sibling.

Is it up to the custodian to allow or disallow the RMD to be taken from the IRA before it is split between the two beneficiaries, or is there a rule guiding all custodians that would allow for the RMD to be distributed before the account is split among the beneficiaries?
Assuming the mother’s RMD can’t be taken from the IRA but it must be satisfied once assets flow into the inherited IRAs, I am assuming then that the mother’s RMD would appear as taxable income to the beneficiaries rather than be taxable income on the mother’s final tax return (2025)?
When the two beneficiaries begin taking the RMDs annually to comply with the 10 year rule, am I correct in thinking that each will be able to use the single life table based on the beneficiaries age as of year’s end 2026, which is the full calendar year after the mom died in 2025. Then the client and sibling just reduce their starting RMD divisor by 1 in 2027 and for each year until the 10th year at which time the full inherited IRA balance must be distributed?

Thank you,

Austin

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Permalink Submitted by Alan - IRA critic on Tue, 2025-05-27 17:17

Separate inherited IRAs must be created before any post death distribution is made because IRA custodians require a newly created inherited IRA under the respective beneficiary SSNs to report distributions. Therefore, the creation of the separate account (after death cert and beneficiary SSN and contact info are supplied) must occur before any post death distributions. In a qualified plan, separate accounting rather than actual separate accounts is used, but IRA custodian almost universally require separate accounts with new AC # and titling before making distributions.

Q 2 -The separate inherited IRA accounts are created without a year of death RMD being distributed at that time. The year of death RMD can be taken in any combination between the beneficiaries (not necessarily pro rata) and will be reported on a 1099R to the beneficiary who received the distribution. The year of death RMD is not reported to mother unless she took the distribution before passing. Note that the new Regs extend the deadline until year end of the year after death (12/31/2026) to complete the year of death RMD, but it usually is preferable to complete it in the year of death because the year after death will also require a beneficiary RMD.

Q3 – Yes, your thinking is correct regarding calculation of the beneficiary RMDs starting in 2026. Accounts must be drained by year end 2035.