Q: My Mom, who is retired and 70 years old, just received $278,000 from her brother’s IRA. He passed away 2 weeks ago.

What taxes will she have to pay on this? The monies were just deposited into a bank account that she and her brother had. He added her to his checking account a couple months ago when he knew he would be passing and needed her to handle his affairs while he was in the hospital.

A: My condolences on the loss of your uncle. Generally, when a person inherits an IRA account, that person could chose to deposit the funds into an inherited IRA (that is an account that rolls the money over into a new IRA and she would avoid paying any taxes on the full amount distributed unless she takes the cash). The other choice is to take the funds and pay all of the taxes owed all at once.

Depending on what has happened to the account, your mother may still have a choice in this matter. You or your mother should talk to an IRA specialist at your bank or financial institution that held your uncle’s funds to determine her choices at this time. You need to find out early on the tax treatment you will receive from the inherited IRA.

By receiving the full $278,000 in IRA funds into a non-qualified account (unless the bank account is a qualified, tax-deferred account, like an IRA), the IRS will treat this as if she earned an extra $278,000 in 2009, throwing her into the highest tax bracket. At the highest federal income tax bracket she should expect to pay about 30 percent tax on the money she receives. The actual percentage will vary depending on other income she receives and other factors. But that 30 percent number will give you a ballpark figure.

If she could roll over the funds into another IRA account, she would otherwise have the option of drawing down the money over time, which could spread out some of her tax liability and perhaps lower the amount of taxes she pays on a year-to-year basis.

But her immediate move should be to discuss this with her tax preparer or accountant and with the company that is holding the IRA funds.

For more information on IRAs, see our IRA topic page and the following article Tax Treatment of Inherited IRA Distributions.