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splitting an Inherited IRA

I'm the sole beneficiary of a recently deceased parent's traditional IRA. Although I was listed as the sole beneficiary, I intend on splitting the IRA with my siblings. My question: What are my options for distributing the funds and sharing with my siblings. Can I just do the lump sum and send 1099 to my siblings for their portions? OR Can I roll it over and pull out a specific amount each year (to avoid the higher tax bracket) and gift them the money?

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Accepted Solutions
Opus 17
Level 15
Intuit Approved! This answer has been verified for accuracy by an Intuit expert employee

splitting an Inherited IRA

"Can I just do the lump sum and send 1099 to my siblings for their portions?"

 

No.  The IRA belongs to you only (as beneficiary of the original owner) and all income/withdrawals/distributions are taxable to you alone.  If you send money to someone else, that is a gift, and must be reported on form 709 if the amount is more than $17,000 per person per year.  (I suggest you send the net amount after taxes, since you will have to pay the taxes.)

 

"Can I roll it over"

 

You can do a rollover to an IRA with a different bank or broker, if you don't like the current bank, but the account must always be kept separate as an inherited IRA.  You can never combine inherited IRA funds with your own IRA funds in your situation.  If you have compensation from working, you may be able to use the withdrawn funds to make a contribution to your own IRA, but that is subject to all the usual contribution rules and is not a rollover.  You must withdraw the money from the inherited IRA and pay the tax, then the money is just your money in the bank and you can do whatever you want with it subject to any normal rules. 

 

"and pull out a specific amount each year (to avoid the higher tax bracket)"

 

That's entirely between you and your siblings.  For an inherited IRA where the beneficiary is "non-qualified" (that's you), you must follow the 10 year rule.  That means that you must withdraw the account down to zero by the end of the 10th year after the date the original owner died, and if the original owner was past their beginning year for RMDs, you must also take an RMD each year until the last year or the money is all withdrawn.  (You can always withdraw more than the required minimum amount, but you must withdraw at least the minimum amount.)

 

How fast you withdraw the money, and how fast you give it to your siblings, is entirely between you and them.  Just remember the money is always taxable to you alone, and you must withdraw all the money and close out the account in 10 years or less. 

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5 Replies

splitting an Inherited IRA

Yes, you could gift them the money. 

splitting an Inherited IRA

I agree with @Bsch4477 and that is about the only way.

 

It would be a gift because the account belongs to you and you alone. There would be no need to 1099 them in any event.

Opus 17
Level 15
Intuit Approved! This answer has been verified for accuracy by an Intuit expert employee

splitting an Inherited IRA

"Can I just do the lump sum and send 1099 to my siblings for their portions?"

 

No.  The IRA belongs to you only (as beneficiary of the original owner) and all income/withdrawals/distributions are taxable to you alone.  If you send money to someone else, that is a gift, and must be reported on form 709 if the amount is more than $17,000 per person per year.  (I suggest you send the net amount after taxes, since you will have to pay the taxes.)

 

"Can I roll it over"

 

You can do a rollover to an IRA with a different bank or broker, if you don't like the current bank, but the account must always be kept separate as an inherited IRA.  You can never combine inherited IRA funds with your own IRA funds in your situation.  If you have compensation from working, you may be able to use the withdrawn funds to make a contribution to your own IRA, but that is subject to all the usual contribution rules and is not a rollover.  You must withdraw the money from the inherited IRA and pay the tax, then the money is just your money in the bank and you can do whatever you want with it subject to any normal rules. 

 

"and pull out a specific amount each year (to avoid the higher tax bracket)"

 

That's entirely between you and your siblings.  For an inherited IRA where the beneficiary is "non-qualified" (that's you), you must follow the 10 year rule.  That means that you must withdraw the account down to zero by the end of the 10th year after the date the original owner died, and if the original owner was past their beginning year for RMDs, you must also take an RMD each year until the last year or the money is all withdrawn.  (You can always withdraw more than the required minimum amount, but you must withdraw at least the minimum amount.)

 

How fast you withdraw the money, and how fast you give it to your siblings, is entirely between you and them.  Just remember the money is always taxable to you alone, and you must withdraw all the money and close out the account in 10 years or less. 

rjs
Level 15
Level 15

splitting an Inherited IRA

There is no good way to do what you want. There is no way that you can split the IRA with your siblings. There is no way that it can become an IRA for them. All you can do is take money out, pay the tax on it, and give money to your siblings as gifts. A gift is not taxable income to the person who receives the gift.


Any money that you take out of the inherited IRA will be taxable income to you (but will not be subject to the 10% penalty even if you are under 59½). You will get a Form 1099-R at the end of each year showing the amount that you took out of the IRA. You have to enter the 1099-R in your tax return. There is no way to transfer the tax obligation to your siblings. You cannot issue 1099s to them.


As Opus 17 said, if you give any one sibling more than $17,000 in any year, you must file a Form 709 gift tax return. That is not part of your income tax return, and you cannot file a gift tax return with TurboTax. The $17,000 limit might be increased in future years to adjust for inflation.

 

splitting an Inherited IRA

Thanks everyone for the great feedback!

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