Now that jimrac has given an example, I understand the point he is trying to make. However, there's a couple of things he doesn't consider. IF you took an inheritance as cash, and IF you kept it as cash, then yes, you could spend it down without incurring income tax. However, if you take that money and invest it, you will pay taxes upon your gains. But you do get that Âstep up basis jimrac is depending upon. But of course, if you allow the account to compound over time without spending principal, you run the risk of incurring estate taxes for your own heirs. You could also buy an annuity, which has some limited tax advantages. Conversely, inheriting an IRA is different. You do not have to cash out an inherited IRA, in fact you should always roll it over into an FBO account in your and the deceasedÂs names. IF the owner was taking distributions, heirs also have to take distributions  but they can take the minimum distribution (Required Minimum Distribution, or RMD) which at young ages is a very modest amount indeed. If the owner was not taking distributions, the IRA can be left intact until age 70-1/2 for the heir. And in the case of an inherited Roth IRA, there is NEVER any income tax, for owner or heirs. Because the gains in the Roth compound tax-free, they win hands-down over any taxable account. The biggest issue is the salary restrictions (higher wage earners are barred from contributing to a Roth, although in 2010 only they can convert any amount they wish to pay income taxes on now) and the low annual contribution amount (although I expect Congress will probably increase those at some point). As my ex-boss, a respected CFP, used to say, "Don't let the tax tail wag the dog!" Tax planning should be looked at in a holistic fashion. Somebody's going to pay taxes, it just depends on who that is, and how much. Frankly, if you had a $1M mutual fund account - and I know quite a few people who do - if you were that concerned about your heirs paying income taxes, you'd set up an ILIT (Irrevocable Life Insurance Trust) for your immediate heirs, and a Bypass or QTIP trust for the future generation heirs.

No one can answer this without way more detailed data. You need to share: -What your AGI was last year -Your total tax bill last year -How much tax was witheld last year -How much you owe the IRS from the difference between the 2 above -What penalties and interest they are charging you (including details on when more penalties are being added) -What sort of payments you are making now, and what you are able to make if you squeeze your budget a little more. -What your income is projected to be this year -How big your retirement nest egg is, and in what form (401k, IRA, Roth, etc.) -How old your husband is If you care to open your kimono and share all that, we might be able to provide you a little more educated guess, but the mathematical answer depends on your info above. For example, if you owe $10,000 and your income is $100,000 the answer is probably "just tighten your belt and pay it off in a few months." If you owe $100,000 and your income is $10,000, then you might have no other options than your retirement nest egg, regardless of how big it is. But all the other stuff factors in as well, like how fast the penalties and interest are piling up and what tax bracket you're in now.

A basic principle of taxation in the USA is every dollar is taxed once and only once. (Qualifying Roth IRA withdrawals can be an exception.) Your contributions to the Roth IRA should not be taxed again by the IRS because you already paid taxes on those contributions when you put them into the Roth IRA. The earnings on the Roth IRA may or may not be taxable depending on your circumstances. For example, how old are you, how long were the funds in the IRA, were there any circumstances that existed in your life that would qualify you for an exception to the 10% penalty for early withdrawal? Page 58 of the pub linked to below should help you answer your questions. In my 12 years of preparing taxes, one of my favorite things to do is prove the IRS wrong when they assess additional taxes. Good luck. Here is a link that might be useful: IRS Pub 590

After I retired, I asked Fidelity if I could keep my retirement account with them. They said "OK." However, as I no longer am with the company which had an incentive program, my assets were rolled into a money market fund (like CD's, gov't bonds, etc.). Also at a certain age, one must take out the minimum distribution from the fund. I can still keep my funds with Fidelity and consult one of their brokers, in case I wanted to invest in a more aggressive portfolio, (stock market), but I'm just as happy to have a dividend sent me every quarter, that is based on keeping the principal at a fairly constant level, although the interest rates on such investments are not as lucrative (nor as volatile). Bejay