IRS regulations require that retirement accounts (such as an IRA) left to multiple beneficiaries must be distributed over a period no longer than the life expectancy of the oldest beneficiary. Thus, if you and your older sister inherit an IRA, it must be paid out over her shorter life expectancy.
However, there is an exception to this rule. If the IRA is divided into “separate accounts” payable to the respective different beneficiaries, each beneficiary can use his or her own life expectancy to stretch out minimum distributions. Such separate accounts must be established by the end of the year after the year of the IRA owner’s death. (The same is true if another type of retirement account has been inherited.)
The IRS doesn’t say what “establishing” separate accounts means but most tax pros believe that the single inherited IRA must be divided into separate inherited IRA accounts, one payable to each beneficiary. You’d open new “inherited IRAs,” in the name of the deceased IRA owner, one payable to each of the IRA beneficiaries. Then, the original inherited IRA is closed out, and its assets are transferred, by means of custodian-to-custodian transfers, in equal amounts directly into the new accounts.
Subsequently, you’d be able to stretch out minimum distributions over your own life expectancy, not that of your older sister.