Multiple Beneficiaries on an Inherited IRA: Separate Account Rules

Two critical deadlines determine whether siblings (or any co-beneficiaries) can each manage their inherited shares independently — or get locked into the oldest person's calculation.

Why multiple-beneficiary IRAs create planning complexity

Suppose your parents named you and your two siblings as equal beneficiaries of their $900,000 traditional IRA. Each of you inherits a $300,000 share. Simple enough — except the account isn't automatically split. Until you take action, all three of you share one inherited IRA account, and the RMD rules apply to the group as a whole, using the oldest sibling's life expectancy as the governing factor.

The IRS provides a cure: the separate account rule. If each beneficiary establishes their own inherited IRA by the December 31 deadline, the rules apply to each account independently. This matters more than it might appear.

Deadline 1: September 30 — the beneficiary determination date

The IRS identifies the final set of designated beneficiaries as of September 30 of the year following the year of the IRA owner's death.¹ This date matters for two reasons:

Disclaimers must be filed by September 30

A beneficiary who wants to remove themselves from the account — for example, an adult child who doesn't need the money and wants their share to pass to the contingent beneficiary (often a grandchild) — must file a qualified disclaimer before this date. A valid disclaimer treats the disclaiming beneficiary as having predeceased the owner, passing that share to whoever is next in line. After September 30, disclaimers no longer affect the RMD calculation.

Non-designated beneficiaries can contaminate the pool

If a charity, estate, or non-see-through trust is still named as a co-beneficiary at September 30, the group technically has "no designated beneficiary" for the share that includes that entity — which triggers harsher rules:¹

• If the decedent died before their Required Beginning Date: the 5-year rule applies to the contaminated pool, meaning the account must be fully depleted by December 31 of the fifth year following death.
• If the decedent died after their Required Beginning Date: distributions must be taken over the owner's remaining single life expectancy — potentially shorter than the 10-year window.

The cure: If the charity or estate cashes out its share before September 30, it is no longer a beneficiary at the determination date. The individual co-beneficiaries are then treated as designated beneficiaries and qualify for the 10-year rule. This is one of the highest-value moves an advisor can facilitate in a multi-beneficiary inherited IRA situation — and the window is short.

Deadline 2: December 31 — the separate account deadline

To take advantage of the separate account rule, each beneficiary must establish their own inherited IRA — titled correctly as an inherited IRA, not rolled over as their own — by December 31 of the year following the year of the owner's death.²

This requires a direct custodian-to-custodian transfer of each beneficiary's fractional share into a separate account in the format: "Jane Smith, Deceased, IRA FBO [Beneficiary Name]".

What happens if you meet the December 31 deadline

Each beneficiary's account is treated as an independent inherited IRA:

• Each beneficiary uses their own age to calculate the Single Life Expectancy factor for annual RMDs (in post-Required Beginning Date cases).²
• Each beneficiary can make withdrawal decisions independently — a younger sibling can defer; an older one in a low-income year can accelerate.
• Each beneficiary can name their own successor beneficiary.
• Each beneficiary can move their share to a custodian of their choice.
• The 10-year depletion deadline runs from the same starting year for all (year of owner's death), but each sibling manages their window independently.

What happens if you miss the December 31 deadline

If the separate accounts are not established by December 31, the IRS treats the group as a single inherited IRA. The annual RMD factor is determined by the oldest designated beneficiary's age as of December 31 of the year following the owner's death.²

This can materially increase annual RMDs for younger beneficiaries in post-RBD situations, where the annual minimum is calculated using the life expectancy factor. A 65-year-old sibling has a shorter factor than a 40-year-old sibling, producing a larger annual RMD for the entire account. The 40-year-old is forced to take more each year than they'd be required to take if they had their own separate account.

The 10-year rule: does splitting affect the deadline?

The SECURE Act 10-year rule requires that the entire inherited IRA be depleted by December 31 of the 10th year following the year of the owner's death. This deadline is the same for all beneficiaries, regardless of whether separate accounts are established.

However, the separate account rule still matters under the 10-year rule:

• In post-RBD situations, annual RMDs apply during years 1–9 — and the calculation uses each beneficiary's own factor if separate, the oldest factor if not.
• In pre-RBD situations, there's no annual minimum — but each beneficiary can still make independent withdrawal decisions only if their account is separated.

Step-by-step: how to establish separate accounts

1. Identify the deadline. If the owner died in 2024, the deadline is December 31, 2025. If in 2025, December 31, 2026.
2. Contact the IRA custodian. Call the bank or brokerage holding the original IRA and ask about beneficiary account splitting. Most major custodians (Fidelity, Schwab, Vanguard, Merrill) have a specific process for this.
3. Each beneficiary opens an inherited IRA. This can be at the same or different institution. The title must identify it as an inherited IRA — it is not a rollover to the beneficiary's own IRA.
4. Complete a trustee-to-trustee transfer. The fractional share transfers directly from the original account to each new inherited IRA. The beneficiary does not receive the funds in cash (which would trigger immediate tax and the 60-day rollover clock — inherited IRAs cannot be rolled over into your own IRA).
5. Confirm before December 31. Get written confirmation from the custodian that the split is recorded before the deadline. Processing delays around year-end are common; start this at least 30 days early.

Trust beneficiaries and the separate account rule

If a trust is named as a beneficiary alongside individuals, or if multiple trusts are named, the separate account analysis is more complex. The IRS issued final regulations in T.D. 10001 (July 2024) that allow separate accounting for applicable multi-beneficiary trusts — but only if the trust document directs an immediate split of the trust into separate shares upon the owner's death.³ A trust that doesn't contain this language cannot use the separate account rule at the trust level, though individual named beneficiaries alongside the trust can still establish their own separate accounts for their shares.

Sources

1. IRC § 401(a)(9)(B)(iv); Treas. Reg. § 1.401(a)(9)-4(a). The designated beneficiary is determined as of September 30 of the calendar year following the year of the IRA owner's death. Non-designated beneficiaries (entities without a life expectancy, such as estates and charities) who remain as of that date affect distribution period calculation for the group. IRS — Retirement Topics: Beneficiary.
2. Treas. Reg. § 1.401(a)(9)-8(a)–(b); IRS Publication 590-B (2025), Multiple Beneficiaries section. Separate accounts must be established by December 31 of the year following the year of death for each beneficiary to use their own life expectancy factor for annual RMD calculation. IRS Publication 590-B. IRS — RMDs for IRA Beneficiaries.
3. IRS T.D. 10001 (July 18, 2024), finalized regulations under IRC § 401(a)(9). Permits separate accounting for applicable multi-beneficiary trusts where the trust instrument directs immediate division into separate shares upon the IRA owner's death. Ed Slott & Company — Final Regulations Allow Separate Accounting for Trusts.
4. IRS Notice 2024-35 (waiving 2021–2024 annual RMD penalties for inherited IRAs subject to the 10-year rule); IRS Publication 590-B (2025), Appendix B, Table I (Single Life Expectancy factors). IRS Notice 2024-35 (PDF).

Rules verified against IRS Publication 590-B (2025 edition), T.D. 10001 final regulations (July 2024), and Treasury Regulations §§ 1.401(a)(9)-4 and 1.401(a)(9)-8 as applicable to 2025 and later inherited IRA distributions.