...You have to be really careful when moving inherited IRA money. If it's not done correctly, the entire IRA will be deemed paid out and taxed.
Inheriting an IRA is a different kettle of fish entirely. Any missteps will be punished by the IRS, too. So, how should you handle IRA money? Very carefully.
The Slott Report considered this matter in a recent article titled "Moving Inherited IRA Money? Be Careful." If you inherit non-IRA money, plain and simple, then you could stick it in any bank account or investment and be done with it. Unfortunately, there are extra steps to consider when moving inherited IRAs.
For starters, you cannot move an inherited IRA into your own IRA if you are a non-spouse beneficiary. What if the financial institution where the account is held charges too much or another institution has better investment options? How do you move the inherited non-spousal IRA? The direct approach, naturally.
In a direct IRA transfer the first bank cuts the check to the second bank, for your "benefit" as beneficiary but NOT in your "name." If the check is made payable to you, then it's already too late. The tax deferral advantage of the IRA will be lost and taxes due. Moreover, in the transfer the receiving IRA has to be of the same kind of IRA (i.e., from a traditional IRA to traditional IRA, or from Roth to Roth).
Indeed, there are lots of little details associated with inherited IRAs. It really pays to have competent legal and tax counsel before you make a move. Otherwise, there can be some hefty taxes to pay at ordinary income tax rates.