Ask the Expert: Correctly title IRAs

You can legally accomplish your goal, but brace yourself for an argument with the IRA custodian if its staff isn't familiar with the rules governing inherited IRAs.

Dividing this money while preserving its tax-deferred status is a two-step process, says Barry C. Picker, a Brooklyn tax accountant and IRA expert.

Step one is to retitle the IRA. If the original owner John Smith died on Jan. 2, for example, the IRA should be retitled "John Smith IRA (deceased Jan. 2, 2013), Estate of John Smith, beneficiary."

Step two is to get the custodian to divide this newly retitled IRA into new inherited IRAs for the heirs. If 25 percent of the money goes to Mary Jones, for example, 25 percent of the estate's retitled IRA should be moved into a new inherited IRA called "John Smith IRA (deceased Jan. 2, 2013), Mary Jones, beneficiary."

All of this can be done without triggering taxes, says Picker.

Mary Jones and the other heirs must take annual distributions from their inherited IRAs. The distributions can't be based on their own life expectancies because they inherited the IRA through John Smith's estate, not as its designated beneficiaries. Since he died at age 73, the heirs must base their distributions on a 73-year-old's life expectancy factor on the IRS Single Life actuarial table for beneficiaries. That factor is 14.8; so if Mary Jones' share is $25,000, her first distribution will be $1,689 -- $25,000 divided by 14.8.