Can an Estate Inherited IRA Be Split?

An IRA, or Individual Retirement Account, is a way to save tax-free for retirement. The owner only pays income tax on the money in the account when she starts making withdrawals. If an owner dies with money in the IRA and it passes to multiple beneficiaries, they can divide up the account or split it into multiple separate IRAs. If the beneficiary is the owner's estate, the rules change.

Identification

• When an individual opens up an IRA, he usually identifies a beneficiary or several beneficiaries who will receive the account if he dies. The beneficiary doesn't have to be a person; some owners will transfer the contents of the IRA to their estate for distribution after their death.

Time Frame

• Once the IRA owner reaches 70 1/2, the IRS requires she take a minimum amount out of the account every year, based on the IRS life-expectancy tables. If the account owner has 15 years to live, according to the IRS table, and the account contains $150,000, the owner would have to take out $10,000 -- one-fifteenth of the amount -- every year. The owner can take out more in any given year, but she'll still have to take the minimum distribution each year after that.

Effects

• If the IRA owner dies, the beneficiaries will also have to take annual minimum distributions. The total amount that must be withdrawn each year, by all beneficiaries combined, will be based on the beneficiary with the shortest life-expectancy. If the owner divided the IRA into separate accounts, however, then each beneficiary will have his own withdrawal amount, based on his life expectancy.

Considerations

• If the IRA owner named her estate as the beneficiary -- or if she didn't name a beneficiary and it went to the estate by default -- it can't be split, but gets distributed according to her will. If the owner died before she reached 70 1/2, the money must be paid out over five years; if she was older than 70 1/2, it will be based on the IRS life-expectancy table for the age she was when she died.

Warning

• Leaving the IRA to the estate is a worse deal for the heirs than splitting it, the Retirement Income website states. The longer the heirs or beneficiaries have to withdraw money, the less they have to take out each year, which lowers the chance the withdrawal will push them into a higher tax bracket. Other drawbacks include that the IRA contents must go through probate and they might be claimed by the estate's creditors.