Thanks for your question and sorry to hear the angst you are going through with trying to manage the inheritance. I will try to answer some of your issues but I am going to suggest you use the “Find a Planner” in the helpful links to find a fee-only planner with tax experience near you to really get at the solutions you need after reviewing more details of your situation.

With respect to what you can do with this IRA, the first thing would be to find a trustee to transfer this account to who will work with you and allow you to do what you are legally able to do, starting with naming a beneficiary for this account in the event of the death of the current beneficiary of this account. The only “penalty” that your husband will pay if he takes out the entire amount is the federal and state income tax on the amount withdrawn (which could be substantial) but the age 59 1/2 rules do not apply to this situation.

While your husband is required to take the RMD as he has been doing, he can take out more than the minimum in any year. I would be sensitive to what tax bracket any withdrawal would put this money in before you take anything other than the RMD out. In previous responses to other posts I have provided ideas on why taking more out now would be a good idea, like putting the proceeds into a Roth IRA for you and your husband, the caution has always been to look at the tax consequences first. You do not want to pay more taxes than necessary.

When you are looking for someone to help you (which I strongly urge) with the financial and tax planning aspects of everything in your post, you want someone who is also knowledgeable about the tax laws related to rental activity and the IRA rules. This is because there are rules that need to be followed in both areas as well as tax advantages to truly following these rules. More analysis is needed of the facts you have presented that prevent me from providing the right options for you to consider. The right professional will be able to assist you and provide you with the positive tax benefits of following those rules.

Good luck with the new addition to your family and I hope you find the information helpful. If you have another question, please feel free to post another comment.

Thanks for your questions, I hope by now you are back in the ranks of the employed. If I am reading your comments correctly, it looks like you took out $69,000 from the inherited IRA. I am not sure what the $6,000 was but for this purpose let me assume it was income you earned. That will allow me to cover a few bases that may be important for tax purposes.

If the $69,000 was all that was taxable on your tax return (meaning no unemployment income or other income), then about $60,000 would end up as taxable income after the personal exemption and the standard deduction if you are single. That $60,000 would create a tax liability of about $11,150 federal tax plus whatever the tax rate is for your state and local income taxes.

If you were married, then I am not sure I can help because I do not have enough information. For instance how many children are you claiming, what income did your wife have, what itemized deductions will you be claiming on Schedule A, etc.

Now, if the $6,000 was income you earned from odd jobs, then you have what is called Schedule C income and you will owe self employment taxes (FICA) of about 15% on the $6,000 (less if you have expenses to claim in earning this money), or $900. This would add about $5,400 of income on top of the $69,000 in the above calculation and this $5,400 amount would be taxed at 25%, or another $1,600 of federal income taxes.

If these tax amounts sound like too much to handle at one time, the IRS might agree to a payment arrangement that can be requested at the time you file the tax return. See Form 9465 at the IRS web site for details.

If you look for previous articles I have written, there is one about Form1099-Misc that gets many people in tax trouble because they do not prepare themselves for the shock of the tax bill when they get to tax time.

Hope this helps you with the tax planning before you go looking for that Enrolled Agent near you to get your return done by a tax professional – http://www.naea.org. That EA will be sure that you end up with a correct, complete and well thought out tax return.

If you have additional questions, feel free to leave another comment.

Thanks for your great questions, I continue to be impressed with the ideas that get presented by the readers of this blog.

Lets do the easy things first. If your grandfather passed away in 2012, an RMD based on his age will be required before you do anything with the money going into the IRA you are inheriting. Second, you cannot roll this into a Roth IRA, it will be maintained as an inherited IRA for your benefit during your lifetime.

Your question about taking it out in 5 years is only one of the options you have. Under this option, you would have to take the entire amount out at that time and pay taxes on the entire amount that is taxable at that time. I am not sure that would be the best result for you and your family because the amount would be taxed at a much higher rate than is necessary if you used the other option.

The other option you have is to take an RMD each year based on your age today and using the Table in IRS Pub 590, page 86. Guessing at your age, I would suspect the factor today is about 50, or about 2% the first year for the RMD. That would be about $2,500 of taxable income to be added to your other income. When you take out that $2,500, there are no limits on what you can do with this money. Based on your situation, you could put that RMD withdrawal amount in the special needs trust for your daughter, buy something for yourself or your daughter, or put it into a Roth IRA for you assuming you have earned income of at least that amount and have not already made a contribution to your Roth IRA for 2011 or 2012.

After that 2% RMD, the balance in the inherited IRA would grow so that over your lifetime, this money is going to grow to a big sum. See my comments to Tricia in my previous comments to her.

As I am sure you know, children with special needs should not have money left directly to them as then you lose many benefits that are very valuable to you and your child. It is also not a good idea to have the special needs trust be the beneficiary of this IRA now or at the end of your life because the trust is not able to make the same decisions that a person can. So the beneficiary of the IRA you are inheriting should be a person not a trust.

The trust question is one I would suggest you discuss with the attorney who has assisted you in the development of the special needs trust you already have or an attorney you would be contacting to set up a special needs trust.

While you are required to take out the RMD amount each year, you can take more than that amount in any year you so desire. If you are not currently contributing to a Roth IRA for you and your spouse (assuming you are married), you might consider taking out enough each year to be able to fund those Roth IRAs ($5,000 for you and $5,000 for your husband assuming you have earned income from wages of at least $10,000). As noted for Tricia, you have until April 15, 2012, to fund the Roth IRA for last year. Y the way, this is how you get the money form the inherited IRA to a Roth IRA, you just need to take a little longer to get the job done.

Why the Roth IRA versus leaving it grow in the inherited IRA? Because the future earnings in the Roth IRA will not be taxed whereas the IRA amounts will always be taxed. In addition, the amounts in the Roth IRA are not subject to the RMD at age 70 1/2 like amounts in a 401k/IRA would be.

Finally, I would suggest you find a fee-only financial planner in your area by using the Find A Planner button at this website to refine the suggestions I have made based on learning more about your particular situation. For tax impacts you may want to look for an Enrolled Agent in your area by going to the http://www.naea.org website. An EA is one who is a specialist is tax rules and can assist you with what amounts would make sense to take out each year and keep the tax cost as low as possible. Be sure to have these professionals show you the long term benefits of each option I have suggested you consider.

If you have additional questions feel free to leave another comment.