Introduction

[progree]

3. I worry if you inherited any IRAs or 401ks.

If you move the money to a regular taxable account (either in the inheritance accounts or to your account), that is considered a distribution, and you will owe taxes on that entire amount (if it's a traditional IRA or traditional 401k). If it's a large amount, you can end up paying taxes on it at a high tax rate because the whole amount becomes taxable income in the year you took distribution.

The correct way is to properly retitle it and ... and ...

If you don't properly retitle it, you may have to take distribution of all of it over 5 years and pay taxes. But that's better than all in one year.

If you do everything properly, you will have to take distribution of all of it over 10 years and pay taxes, but the annual increase to your "income" and therefore your taxes will be much less (will get taxed in a lower tax bracket most likely) than if you took the distribution of it all all in one year. You will probably want to take partial distributions each year, with an eye on what tax bracket it is putting you into each year.

Anyway, don't do anything with an inherited IRA or 401k until you are sure, absolutely sure, that you know what you are doing. (But there are deadlines too on doing what you have to do...). Super-resource the last time I used them, several years ago: https://www.irahelp.com/forums/ira-discussion-forum -- very helpful message board with people who know their stuff delighted to help those who don't.

If someone other than you is handling the parceling out of the inheritance to the heirs, it's that person that must do the proper things as well as you. We had someone post here who was the executor of the estate who didn't know about IRAs and just cashed them out into a taxable money market account and then distributed the cash (in the form of money market fund shares I presume) to the heirs of which she was one. Screwing herself and all of them -- they and she ended up with big tax bills, and lost the tax-deferred compounding benefit of the IRAs, which is the whole point of investing in them (or a Roth IRA, different story, that's tax-free).

If I remember correctly her share was so large that it not only kicked her up into a much higher tax bracket, but she had to pay Medicare premium surcharges for high income people! (In effect her tax bracket was more than just what one would see looking at the tax tables. Almost certainly, more of her Social Security was taxed too, increasing her effective marginal tax rate even more).