PLR 202631001, July 31, 2026

For tax practitioners managing estate administrations, the post-mortem division of individual retirement accounts (IRAs) represents a significant compliance challenge. In Private Letter Ruling 202631001, the Internal Revenue Service (IRS) addressed a critical question: whether a trustee-to-trustee transfer of a decedent’s traditional and Roth IRAs to separate transferee IRAs, partitioned in equal shares for the estate’s beneficiaries, constitutes a taxable distribution or a prohibited rollover. The Service ruled in favor of the taxpayer, confirming that such transfers, when properly structured, are non-taxable events and do not trigger immediate income recognition under Section 408(d)(1) of the Internal Revenue Code (IRC).

Factual Background and Family Estate Administration

The factual scenario of this private letter ruling involves a decedent who, at the time of death, maintained two separate individual retirement plans: a traditional IRA, designated as “IRA X,” and a Roth IRA, designated as “IRA Y.” Upon death, a complicating factor arose: the decedent “did not designate a beneficiary under either IRA.” Consequently, under the default terms of the accounts, the decedent’s estate, designated as “Estate E,” “accordingly became the beneficiary of IRA X and IRA Y after Decedent’s death on Date 2.”

Following the decedent’s passing, both accounts were appropriately retitled as “IRA of Decedent f/b/o Estate E.” The decedent’s Last Will and Testament, which had been executed on “Date 1,” provided that the residuary estate, including the interests in “IRA X and IRA Y pass to Taxpayer A and Taxpayer B (Beneficiaries), each in equal shares.” Taxpayer A was subsequently appointed by a “State S court” as the administrator of Estate E on “Date 3.”

The Proposed Partition and Requested Rulings

To execute the dispositive provisions of the decedent’s will, Taxpayer A, acting in the fiduciary capacity of administrator of Estate E, proposed to divide the assets of both IRA X and IRA Y equally. Specifically, the plan proposed “to equally divide the assets of IRA X and IRA Y each into two separate IRAs by means of trustee-to-trustee transfers.” Each transferee account would be established with a title reflecting its fiduciary nature: “Decedent (Deceased) IRA f/b/o Beneficiary as beneficiary of Estate E.”

Under these representations, the administrator requested two specific rulings from the Service:

That the transfer of each beneficiary’s respective one-half interest in IRA X and IRA Y to the separate transferee IRAs via trustee-to-trustee transfer “will not constitute a taxable distribution under § 408(d)(1) to the Beneficiaries and will not constitute a rollover as defined in § 408(d)(3).”
That following the trustee-to-trustee division of the accounts, “Estate E will not include in its gross income, and the custodian of the transferee IRAs will not report as income to Estate E, any amounts distributed from the transferee IRAs to the Beneficiaries.”

Statutory Authority and the Impact of Revenue Ruling 78-406

The IRS initiated its analysis under IRC Section 408(d)(1), which establishes the general rule that “any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under § 72.” While Section 408(d)(3)(A) provides an exception for rollover contributions where distributed funds are re-deposited into an eligible plan within 60 days, this exception is strictly unavailable for non-spouse inherited accounts. Under Section 408(d)(3)(C), “amounts received from an inherited IRA cannot be rolled over into another IRA.” A non-spouse beneficiary who “acquired the IRA by reason of the death of another individual” is prohibited from utilizing the rollover rules.

However, the Service distinguished between a taxable “distribution” followed by an impermissible rollover and a direct “trustee-to-trustee transfer.” To ground this distinction, the IRS relied heavily on the foundational principles of Revenue Ruling 78-406, 1978-2 C.B. 157. Revenue Ruling 78-406 holds that “the direct transfer of funds from one IRA trustee to another IRA trustee, even if at the behest of the IRA holder, does not constitute a payment or distribution to a participant, payee or distribute.”

In Revenue Ruling 78-406, the taxpayer had previously rolled over funds between IRAs and was barred by the three-year frequency limitation (now a one-year limitation under Section 408(d)(3)(B)) from making another rollover. The ruling concluded that a direct trustee-to-trustee transfer “did not result in such funds being paid or distributed to the participant.” Because the funds “are not within the direct control and use of the participant,” the transaction does not constitute a rollover contribution. Critically, this non-taxable status applies “whether the bank trustee initiates or the IRA participant directs the transfer of funds.”

Service Analysis and Fiduciary Application

In applying the statutory and revenue ruling framework to the taxpayer’s facts, the IRS extended the logic of Revenue Ruling 78-406 to estate administrations where an estate is the named IRA beneficiary. Although Revenue Ruling 78-406 “specifically applies in the case of a transfer by the original IRA owner from one IRA titled in the IRA owner’s name to another IRA titled in the same manner,” the IRS determined that its core principles apply equally to transferee inherited IRAs that preserve the beneficial identity of the estate.

Because each of the transferee IRAs will be “set up and maintained in the name of Decedent (Deceased) f/b/o Beneficiary as beneficiary of Estate E,” the trustee-to-trustee transfer does not place the assets in the direct control or use of the beneficiaries. The direct movement of assets from the primary inherited IRAs to the separate transferee inherited IRAs is a mere change of trustee, not a distribution.

Accordingly, the IRS ruled that:

“Consistent with the principles of Rev. Rul. 78-406, because each of the transferee IRAs will be set up and maintained in the name of Decedent (Deceased) f/b/o Beneficiary as beneficiary of Estate E, the transfer of each Beneficiary’s respective onehalf interest in IRA X and IRA Y to separate transferee IRAs (via trustee-to-trustee transfer) will not constitute taxable distributions under § 408(d)(1) to the Beneficiaries and will not constitute rollovers as defined in § 408(d)(3).”
“After the transfer of assets from IRA X and IRA Y to the transferee IRAs, Estate E will not include in its gross income, and the custodian of the transferee IRAs will not report as income to Estate E, any amounts distributed from the transferee IRAs to the Beneficiaries.”

Practitioner Takeaways and Procedural Caveats

This ruling reinforces the high value of utilizing direct trustee-to-trustee transfers to partition inherited IRAs when an estate is the beneficiary. By avoiding intermediate distributions to the estate, fiduciaries can seamlessly divide traditional and Roth IRAs among multiple beneficiaries without triggering immediate income tax liabilities or violating the non-spouse rollover prohibition under Section 408(d)(3)(C).

Practitioners must note several critical operational caveats. First, the ruling explicitly assumes that “IRA X and IRA Y satisfy the requirements of § 408 at all relevant times” and that the transferee IRAs will similarly comply. Second, the IRS expressed no opinion “concerning the federal income tax consequences of any other aspects of any transaction described in this letter ruling including, but not limited to, the rules with respect to the required minimum distributions that apply to the IRAs.” Fiduciaries must continue to satisfy the required minimum distribution (RMD) rules under Section 401(a)(9) and Section 408(a)(6) post-transfer.

Finally, as a procedural matter, this determination was issued under Section 6110. Under Section 6110(k)(3) of the Code, a written determination “may not be used or cited as precedent.” While PLR 202631001 provides invaluable insight into the IRS’s current position and analytical approach, it remains technically binding only on the specific taxpayer requesting it.

Prepared with assistance from NotebookLM.