If you inherit an IRA, you’ll be able to extend tax deferral over your life expectancy. However, if you share this inheritance you may have to break out your own account, by certain deadlines, in order to enjoy maximum tax deferral.
Dividing an inherited IRA into separate accounts for each beneficiary allows you to:
* Take distributions on the schedule you’d like.
* Name successor beneficiaries of your choice.
* Follow your own investment philosophy.
Moreover, if you set up separate accounts, each IRA beneficiary can use his or her own life expectancy, for the purpose of calculating minimum required distributions. Otherwise, the shortest life expectancy must be used.
Say you are 40 and your sister is 50 when you jointly inherit an IRA. You must take minimum distributions over her 33.3-year life expectancy. (You may take larger distributions, if you wish.)
However, if you separate that IRA into two IRAs, you’d be entitled to take smaller distributions over your longer life expectancy and thus enjoy more tax deferral. To get this favorable tax treatment, you must separate the IRA by December 31 of the year after the IRA owner’s death.