Distributions to multiple beneficiaries of an IRA.

[Guest Chuck McClure]

Situation: Death of IRA owner before age 70 1/2. Multiple children as beneficiaries (no spouse as beneficiary)in a single IRA. I believe I saw something from the IRS within the past several months indicating that each beneficiary could use his/her own life expectancy in electing out of the 5 year rule, rather than being forced to use the period associated with the beneficiary having the shortest life expectancy. If this new rule exists, please direct me to the proper authority. Alternatively, let me know if this was simply an optimistic dream. Thanks.

[Guest danmar]

Here's you citation from Prop Reg § 1.401(a)(9)-1 and Q&A H-2(B) ['Taxpayers may rely,' Prop Reg 7/27/87].

"Where, as of the employee's (or IRA owner's) required beginning date, or the employee's (or IRA owner's) date of death (for distributions under Code Sec. § 401(a)(9)(B)(iii), [these are pre-70 1/2 death distributions]), the employee's (or IRA owner's) benefit under a plan is divided into separate accounts (or into segregated shares in the case of a defined benefit plan), and the beneficiaries differ from one account (or share) to another, the life expectancy is determined separately for each account (or share). Each separate account (or share) may be distributed, for example, over the joint life of the participant and the beneficiary of each account."

In my experience, not all fund companies or banks are willing/able to seperate the IRA after the death of the owner. This is definately a feature to look for in an IRA custodian.