He Used His Inherited IRA To Buy His Girlfriend A Car. His Sister Thought He'd Jeopardized The Entire Estate.

Ivy Grace

Tue, August 18, 2026 at 4:15 PM GMT+3 6 min read

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When their mother died, she left behind a self-directed IRA with two rental properties and several private notes. The account was split evenly between her two adult children.

Not long afterward, the brother took a distribution from his inherited IRA and used part of the money to buy his girlfriend a car.

His sister couldn't believe it.

Her first thought wasn't that he'd made a bad financial decision. It was that he'd somehow put both of their inheritances at risk.

That's an understandable reaction. But in most cases, that's not how inherited IRAs work.

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His Decision Doesn't Automatically Become Her Problem

Once an inherited IRA has been properly divided, each beneficiary is generally responsible for their own account.

That means if her brother decides to take money out, he's the one who typically deals with the tax consequences—not his sister.

For a traditional IRA, distributions are generally taxed as ordinary income in the year they're taken. And because this is an inherited IRA, most non-spouse beneficiaries also have to empty the account within 10 years under current IRS rules, though some may also have annual required minimum distributions depending on the circumstances.

In other words, buying a car with inherited retirement money might not be the most tax-efficient move, but the IRS doesn't care whether the money went toward a vehicle, a vacation or a kitchen remodel. Once it's distributed, it's his money.

The Complicated Part Isn't The Withdrawal

The real challenge here is what their mother actually left behind.

If the IRA had owned nothing but stocks and mutual funds, splitting it between two beneficiaries would usually be fairly straightforward.

Rental properties and private notes are another story.

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Those assets can't simply be divided in half with a mouse click. Depending on how the IRA is structured, they may need updated valuations, new ownership paperwork or other administrative steps before each sibling has full control over their share.

That's where inherited self-directed IRAs tend to become more complicated than traditional brokerage accounts.

Why Self-Directed IRAs Require More Attention

Owning real estate inside an IRA comes with rules that surprise a lot of people.

The account owner generally can't use the property personally, and certain transactions involving the account owner and other disqualified persons are prohibited under IRS rules.

Those rules don't mean the brother did anything wrong by taking a taxable distribution and buying a car.

They're simply a reminder that once alternative assets are involved, the administrative side of the inheritance becomes just as important as the investments themselves.

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The Better Question To Ask

The sister may have been worried about the wrong thing.

Instead of asking what her brother spent his distribution on, the more useful question is whether both inherited IRAs were set up correctly in the first place.

Have the rental properties been properly retitled?

Have the private notes been assigned to the correct inherited accounts?

Is each sibling now responsible only for their own share?

Those are the questions that can save families from headaches later.

For beneficiaries inheriting self-directed IRAs with real estate or other alternative assets, Advanta IRA administers self-directed retirement accounts and provides educational resources on inherited account administration, including how inherited assets are retitled and managed under IRS rules.

The brother may or may not regret buying his girlfriend a car.

But from his sister's perspective, the more important issue isn't how he spent his inheritance.

It's making sure hers has been handled correctly from the start.

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This article He Used His Inherited IRA To Buy His Girlfriend A Car. His Sister Thought He'd Jeopardized The Entire Estate. originally appeared on Benzinga.com