The administration of inherited qualified retirement accounts can present difficult tax and procedural issues when an estate, rather than an individual, is the beneficiary of the relevant account, which generally occurs by default when an account does not have a designated individual beneficiary. Those issues become particularly important when a decedent’s estate must divide an inherited individual retirement account (“IRA”) among multiple beneficiaries. A recent Private Letter Ruling (“PLR”) issued by the Internal Revenue Service (“IRS”) provides useful guidance concerning one method of accomplishing that division without triggering a taxable distribution or violating the restrictions applicable to inherited IRAs.
In Private Letter Ruling 202631001[1] the IRS considered a situation in which a decedent owned both a traditional IRA and a Roth IRA, had not designated individual beneficiaries for either account, and therefore left the decedent’s estate as beneficiary. The decedent’s Last Will and Testament directed that the IRA interests ultimately pass equally to two beneficiaries. The IRS ruled that the estate could divide the inherited IRAs into separate inherited IRAs for the two beneficiaries through trustee-to-trustee transfers without treating the transfers as taxable distributions or prohibited rollovers.
Although a PLR technically applies only to the taxpayer requesting it and may not be cited as precedent, the ruling provides a useful illustration of the IRS’s analysis of trustee-to-trustee transfers in the estate administration context.
Background
The facts presented in PLR 202631001 are relatively straightforward. The decedent maintained two IRAs: a traditional IRA and a Roth IRA. The decedent did not designate a beneficiary for either account. Following the decedent’s death, the estate therefore became the beneficiary of both IRAs, and the accounts were retitled as IRAs of the decedent for the benefit of the estate.
The decedent’s Last Will and Testament provided that both the interests in the traditional IRA and the Roth IRA would pass equally to two beneficiaries, identified in the ruling as Taxpayer A and Taxpayer B. Taxpayer A was subsequently appointed administrator of the decedent’s estate by the relevant state court.
The administrator proposed to carry out the decedent’s testamentary plan by dividing each IRA equally between the two beneficiaries. Importantly, the proposed division would not be accomplished by distributing the IRA assets to the estate or to the beneficiaries and then having the beneficiaries establish new accounts. Instead, the assets would be divided through direct trustee-to-trustee transfers into two separate transferee IRAs.
The taxpayer requested two rulings from the IRS. First, the taxpayer asked whether transferring each beneficiary’s one-half interest in both the traditional IRA and the Roth IRA to separate transferee IRAs through trustee-to-trustee transfers would constitute a taxable distribution under Section 408(d)(1) or a rollover under Section 408(d)(3). Second, the taxpayer asked whether, after the transfers, distributions from the transferee IRAs to the beneficiaries would be included in the gross income of the estate or reported as income to the estate by the IRA custodian. While this article is primarily focused on the first question, the IRS answered both questions favorably.
Relevant Rules Concerning IRA Distributions
The significance of the ruling begins with the general rule applicable to distributions from IRAs. Section 408(d)(1) provides that, except as otherwise provided, amounts paid or distributed from an IRA are included in the gross income of the payee or distributee. The Code also contains specific rules governing rollovers. Section 408(d)(3) generally permits certain amounts distributed from an IRA to be contributed to another eligible retirement arrangement within the applicable period. The rollover rules, however, do not provide a mechanism for a non-spouse beneficiary to roll an inherited IRA into another IRA. Section 408(d)(3)(C) provides that amounts received from an inherited IRA cannot be rolled over into another IRA when the acquiring individual is not the surviving spouse of the deceased IRA owner.
That distinction is critical. If an inherited IRA were first distributed to a beneficiary and the beneficiary then attempted to place those funds into another IRA, the transaction could implicate the prohibition against rolling over amounts received from an inherited IRA. A trustee-to-trustee transfer, however, is fundamentally different from a distribution followed by a rollover. The IRS relied on the principles of Revenue Ruling 78-406, which provides that a direct transfer of funds from one IRA trustee to another IRA trustee does not constitute a payment or distribution to the participant, payee, or distributee. The IRS likewise recognized that such a direct transfer does not constitute a rollover.
Application to an Estate as IRA Beneficiary
In the subject PLR, the key fact was the manner in which the transferee IRAs would be established and titled. Each transferee IRA would be maintained as “Decedent (Deceased) IRA f/b/o Beneficiary as beneficiary of Estate E.” Thus, the transfer would preserve the character of the account as an inherited IRA associated with the decedent and the estate, rather than distributing the assets to the beneficiaries for their unrestricted use.
The IRS expressly relied upon this structure in reaching its conclusion, where it determined that because the transferee IRAs would be established and maintained in the specified inherited-IRA format, the transfer of each beneficiary’s one-half interest through trustee-to-trustee transfers would not constitute taxable distributions to the beneficiaries and would not constitute rollovers under Section 408(d)(3).
This is the central point of the ruling. The beneficiaries do not receive the IRA assets as cash or otherwise take possession of the assets before contributing them to another account. Instead, the IRA assets remain within the IRA system while the interests are divided among separate inherited IRAs. The IRS also ruled that, following the transfers, the estate would not include in its gross income amounts distributed from the transferee IRAs to the beneficiaries, and the transferee IRA custodian would not report those distributions as income to the estate.
Practical Implications for Estate Administration
This PLR provides a potentially valuable framework for estates that become beneficiaries of IRAs and subsequently need to divide those accounts among multiple beneficiaries.
The ruling illustrates that an executor or administrator may be able to accomplish the division of an inherited IRA without first liquidating the account or distributing the assets to the estate. Instead, the administrator can use trustee-to-trustee transfers to establish separate inherited IRAs corresponding to the beneficiaries’ respective interests.
That distinction can be especially important where the inherited IRA contains substantial assets. A distribution to the estate followed by subsequent transfers could create unnecessary tax and administrative complications. The approach described in this PLR allows the assets to remain in IRA form while the estate’s beneficial interests are separated.
The ruling also demonstrates the importance of the titling of the transferee accounts. The IRS did not merely approve the movement of assets into ordinary IRAs established in the beneficiaries’ individual names. The transferee IRAs were expressly structured as inherited IRAs associated with the decedent and the beneficiaries in their capacities as beneficiaries of the estate. Accordingly, the mechanics of the transaction matter. The ruling should not be read as authorizing a beneficiary to receive an inherited IRA distribution and then freely roll that distribution into another IRA. Rather, the ruling specifically concerns a direct trustee-to-trustee transfer in which the assets remain within appropriately titled inherited IRAs.
Conclusion
This PLR addresses a practical problem that can, and often does, arise during estate administration, being the most tax efficient manner to divide inherited IRA assets among multiple beneficiaries. Here, the division accomplished through trustee-to-trustee transfers and the resulting accounts remained properly titled as inherited IRAs associated with the decedent and the estate beneficiaries were viewed favorably by the IRS. Under those circumstances, the IRS concluded that the transfers were not taxable distributions to the beneficiaries, were not rollovers under Section 408(d)(3), and would not cause subsequent distributions from the transferee IRAs to be included in the estate’s gross income.
Nevertheless, this PLR should be viewed as guidance concerning a particular set of facts, rather than as a blanket rule applicable to every inherited IRA division, as there are certain facts present here that will not be present in other instances. For example, the IRS expressly stated that the ruling assumes both original IRAs satisfy the requirements of Section 408 at all relevant times and that the transferee IRAs will likewise satisfy the requirements of Section 408. For practitioners handling estates with inherited IRAs, the ruling highlights the importance of carefully structuring both the transfer mechanics and the titling of the resulting accounts. Although PLR 202631001 cannot be cited as precedent, its treatment of trustee-to-trustee transfers provides useful insight into the IRS’s position on dividing inherited IRAs while preserving their character and avoiding an intervening distribution to the beneficiaries.
[1] https://www.irs.gov/pub/irs-wd/202631001.pdf. July 31, 2026.
