Can I Split My Traditional IRA Into Two Accounts?
An IRA can be an excellent way to supplement workplace retirement accounts and satisfy any investment desires that aren’t provided through them.
An Individual Retirement Account, or IRA, allows you to deduct savings contributions and pay income taxes only when withdrawing it upon retirement. Like 401(k) plans, however, an IRA has certain rules about when its funds may be withdrawn from its holdings.
Splitting an IRA into two accounts
Individual Retirement Accounts (IRAs) are savings accounts designed to help individuals save for retirement. You have two IRA choices – traditional and Roth. Traditional IRAs allow tax-deferred growth until withdrawal at retirement; however, at that time you must pay income taxes on withdrawal.
Before choosing an IRA as the best solution for you, carefully assess your financial circumstances and assets. A tax deduction may apply if you’re an high earner covered by an employer retirement plan.
Your options for opening a traditional IRA include either opening one through a brokerage firm or bank, though in general a brokerage firm offers more investment choices. Or alternatively you could try using an automated technology platform called Robo-advisor which uses artificial intelligence technology to select investments based on your goals and investment horizon for much lower fees than an advisor would.
Splitting an IRA after death
Individual Retirement Accounts, commonly referred to as IRAs, offer individuals a great way to save for retirement. There are various forms available – traditional IRAs, Roth IRAs and SEP IRAs (for small-business owners).
Once an original IRA owner passes, their account must be distributed among one or more beneficiaries. It is wiser to divide an IRA up during their life so as to ease complicated distribution rules upon death.
Spouses may opt to treat their inherited IRAs as their own by becoming designated account owners; however, individual non-spouse beneficiaries must follow the 10-year rule unless they are chronically ill, disabled or under age.
Separating their IRA accounts can help beneficiaries avoid incurring the 10% early withdrawal penalty and gain faster access to their money, especially those who have yet to reach their required minimum distribution age (RMD). It also avoids costly mistakes caused by taking an RMD too soon.
Splitting an IRA for multiple beneficiaries
If multiple beneficiaries are named on an IRA account, its owner may wish to split it for practical reasons either during life or after death. A financial professional can advise heirs in filing the necessary paperwork. It is essential that full names, dates of birth and Social Security numbers for all beneficiaries be collected; this will allow an IRA administrator to locate each one should funds need to be withdrawn later on. However, withdrawals made before age 59 1/2 can incur income tax penalties of 10% in some instances; there may also be exceptions such as first home purchases, medical costs or higher education payments.
Beneficiaries may also reap the advantages of stretching distributions out over their life expectancies to reduce tax bills incurred when cashing out an IRA. To do this, beneficiaries should open an inherited IRA account before December 31 of the year following the original owner’s passing.
Splitting an IRA for simplification
Owning multiple IRA accounts can make it more challenging to keep tabs on your overall investments, with fees eating into returns over time and making implementation of different investment strategies more complicated.
Divorcing can make RMD calculations easier if there is an age gap among heirs, by giving each beneficiary their own life expectancy to calculate the required minimum distribution (RMD). When an account is divided, each beneficiary can use his or her own life expectancy when calculating his or her RMD; this can lead to significantly lower RMDs for younger beneficiaries and can serve as an excellent strategy for families wanting to preserve assets for the next generation.