To separate binary digits from a 4 or 5-bit input, a binary to BCD decoder is recommended, specifically the 74LS/HC/HCT185 IC, which may be hard to find. This chip can decode up to 6 bits of binary into two digits of BCD, suitable for displaying on 7-segment displays. Additionally, alternatives include using a microcontroller or programmable logic chip for more flexibility. Other options involve using LEDs to read binary directly or employing a BCD-7 segment decoder/driver for specific outputs. The discussion emphasizes the practicality of these solutions for binary digit separation and display.