With larger estates, the IRA may be subject to estate tax as well as the income tax on distributions. The estate tax doesn't apply for an IRA that passes from one spouse to another, but it could apply when it passes to another beneficiary.

"That's why you sometimes hear about IRAs being double-taxed," Fry said.

On of the biggest differences between your own and an inherited IRA is that you can't leave the money to grow tax-deferred (in a regular IRA) or tax-free (in a Roth) until you're 70 1/2. The Internal Revenue Service has rules to make sure the money gets taxed or used eventually.

Spouses have the sweetest deal: They can simply roll the IRA into their own IRA or open a new one and treat the money as their own. That means a spouse can delay taking distributions until he or she reaches age 70 1/2, even if the deceased spouse was older and had taken distributions.

Other beneficiaries must begin taking distributions, usually in the year after the original owner's death. A spouse's IRA is treated the same way if the money goes into an inherited account, which often includes the initials "ABO" and the name of the deceased in its title. The letters stand for "as beneficiary of."

Distributions from an inherited IRA are subject to income tax. Unlike your own IRA, however, there is no penalty for taking the money if you are younger than 59 1/2. Distributions from Roth IRAs aren't taxed.

There's a big penalty if you fail to take distributions, however. The IRS can take half of the distribution you should have received for each year you failed to take a distribution. If the IRA owner was younger than 70 1/2 at death, you can avoid the penalty by taking all the money out by the end of the fifth year after the original owner's death.

Deciding whether to take distributions in a lump sum or in yearly minimum distributions depends on your need for the money and your preference. If the amount is small, it might make sense to take the distribution and pay the taxes, then spend or reinvest the balance. With larger amounts, it may make sense to spread distributions out.

Minimum distributions from an inherited IRA are based on the beneficiary's expected lifetime, not the original owner's. Standard life-expectancy tables, also called single-life tables, are used to determine how much you must take out each year.

For someone who's 50, for example, you would take the number 34.2 from the table and divide that into the balance. The result is your distribution for that year. If the balance is $10,000, the minimum would be $292.40.

The next year, you subtract one from 34.2, so you'd divide 33.2 into the remaining balance to get the minimum distribution for that year.

Les Block, a partner with Brown Smith Wallace LLC in Creve Coeur, said children who inherit an IRA jointly may want to split the money into individual accounts. (SEPARATE ACCOUNTS RULE)

That way, each can use his or her own age to determine the minimum distribution. If they fail to split the IRA by Dec. 31 of the year after the parent's death, the age of the oldest child is used to determine distributions. (IF YOUR RMS’s GO INTO TRUST)

In some situations, it may make sense for someone who inherits an IRA to disclaim or refuse the inheritance. The IRA then passes to the contingent or secondary beneficiary.

For spouses who have enough income without the IRA, it may make sense to disclaim it and let the IRA pass to the children, who can stretch distributions over their lives.

However, the original owner must name a secondary beneficiary before death for a disclaimer to work. A primary beneficiary can't direct who will get the IRA when he or she disclaims it.

"If someone didn't have a secondary beneficiary, the IRA becomes part of the estate," Fry said.

If you find all this confusing, you probably need to ask for professional advice from a tax accountant, a financial planner or the institution that holds the IRA. 

THESE ARE ARTICLES FROM THE ST LOUIS POST-DISPATCH-INSERTS OF RULES 9PUBLICATION 590 OF IRS) ARE FROM STONEWOLFE FINANCIAL-