IRA Beneficiary
25. Option 5: Some or All as Beneficiary
Of course, you don't have to choose just one of these options. You could choose some or all of them - Option 5 - by splitting a large IRA into several smaller IRAs and naming a different beneficiary for each one.
You could name several beneficiaries for one IRA, but then you must use the life expectancy of the oldest beneficiary for the entire IRA, just as we explained when you use a trust as beneficiary. This is especially important if a charity is involved. Remember, it has a life expectancy of zero, so the IRS would consider it the oldest beneficiary. Depending on when you die, this could cause the entire IRA to be paid out in just five years.
With separate IRAs - one for each beneficiary - you can use each one's life expectancy. That will give you the maximum stretch out over all their life expectancies. It will also be more fair to your beneficiaries, especially if there is a wide difference in their ages or if you want to include a charity.
When should you divide a large IRA? That will depend on your planning decisions. Doing it now, while you are living, is the cleanest approach. If you die first, your surviving spouse can split your IRA when he/she does a rollover and names new beneficiaries. And now, under the new rules, your IRA can also be divided into separate accounts by September 30 of the year after the year in which you die. If your money is in an employer-sponsored plan, like a pension or profit sharing plan, you can roll it into an IRA and then split it.
Setting up separate IRAs now will make it a little more complicated to calculate your required minimum distribution each year, because one will have to be figured for each IRA. But you can take the total of these distributions from any IRA you wish. And it can be well worth the trouble. Splitting your IRA like this can also help you save estate taxes.