Inheriting an IRA?

If you have inherited an IRA, be sure to seek professional help before managing this asset. First, IRAs are full of rules, tricks and loopholes bound to get you in trouble. If you make a wrong turn in handling an inherited IRA, you may pay through the nose with tax penalties.

If you inherited an IRA from someone other than your spouse, you will most likely want to retitle the IRA as an inherited IRA or beneficiary IRA. You can only do this if you were named as the beneficiary of the IRA in the first place.

You can cash out an inherited IRA, but you will have to pay taxes. Money stashed away in a traditional IRA (not  Roth IRA) has been stashed using pre-tax dollars. Taxes must be paid on the IRA distributions at some point whether it is during the lifetime of the original owner or when it is inherited. If it is inherited and you retitle it as an inherited IRA, you can take out smaller distributions based on your age and pay taxes as you go. This means that the bulk of the IRA can continue to grow tax-deferred for many many years.

Like I said, lots of rules, tricks and loopholes here. Be sure to consult with someone who understands inherited or beneficiary IRAs.