My sole surviving parent died recently, intestate. She left no appreciable assets other than a retirement account of which I was named the sole beneficiary. The account will be considered taxable income the moment it is transferred to my name. Can I decline to be the beneficiary and treat the account as simply an asset of her estate, free of the estate tax?

-- Joshua Jofen

Joshua,

I hope you're not declining the IRA just because you don't want to pay taxes.

Isn't it better to have the money and to pay some tax than not to have the money at all?

And don't forget, the first $675,000 of the account will be estate-tax free anyway, assuming your mother had not used any of her unified gift and estate-tax exclusion while she was alive, we are reminded by Dee Lee, a certified financial planner and co-author of

Let's Talk Money

(Chandler House Press, 1999).

If the IRA is transferred to you, it becomes taxable income, as you pointed out. But it doesn't have to happen that way. Too many custodians incorrectly assume you can roll it over to your name without incurring tax, says Bill Fleming, director of personal financial services for

PricewaterhouseCoopers

in Hartford, Conn. But only a spouse has the option of a tax-free rollover.

Instead of rolling it over, leave the account in mom's name and rename it "inherited IRA," suggests Martin Nissenbaum, national director of personal income tax planning at

Ernst & Young

. That way, you control the account, but it's not in your name.

But you're not home free yet. If your mom was age 70 1/2 or older when she died, she should have already started taking distributions from the IRA. Minimum required distributions, as they are known, begin April 1 of the year after you turn 70 1/2. If you don't take them, you will pay a 50% penalty on the difference between what you should've withdrawn and what you actually did take out.

Even if the account remains in your mom's name, you'll need to continue taking those required withdrawals. You will owe ordinary income tax on that money.

If your mother died before age 70 1/2, the IRA account must be emptied by Dec. 31 of the fifth year following her death. But there is an exception.

As a nonspouse beneficiary, you can elect to take minimum required distributions over your life expectancy. (Check out Vern Hayden's

Aug. 18, 1999, and

Aug. 25, 1999, columns for more details on minimum required distributions.) Be sure to attach a statement to your tax return explaining your election, says Clarence Kehoe, partner and director of employee benefits at

Anchin Block & Anchin

. The statement is not required, but because there is no actual form, it provides the

Internal Revenue Service

with a paper trail.

But I Don't Want It!

If the IRA account is already in your name and you still don't want it, you can decline to be the beneficiary within nine months of your mother's death. But just because you decline does not mean you can control who or what gets that IRA in your place.

You said your mother died "intestate." That means she did not have a will. So you must defer to your state's laws when there's no will. Each state has a pecking order of who is next in your bloodline. It could be your child or maybe your mother's brothers and sisters. It depends on your state.

"Before you take action, find out whom the money will go to," suggests Kehoe. For instance, if the estate is the next beneficiary in line, the estate would have to empty the IRA because it has no life expectancy. If you're the sole heir, the money will come right back to you.

In some situations, disclaiming your interest can help correct misguided IRA planning, says Kehoe. "Think of it as post-mortem estate planning."

For instance, disclaiming an IRA and turning it over to the surviving spouse is actually a good idea. "The spouse can retitle the account in his or her own name and start fresh with new beneficiaries and a new distribution pattern," says Kehoe.

For example, you are the beneficiary of your deceased father's IRA, and you would rather the money went to your kids. Your mom is still alive, and the state law says that your parents are the next in line to inherit the IRA if you disclaim it.

So disclaim your interest in the account. Your mother will get the spousal rollover, meaning she owes no tax on the money. The account is now in her name, and she can name her grandkids as beneficiaries.

Just make sure there are good tax-planning reasons for disclaiming the money. Otherwise "it's like saying don't give me that lottery money; I'll just have to pay taxes," says Fleming.

Send your questions and comments to

taxforum@thestreet.com, and please include your full name. Tax Forum appears Tuesdays, Thursdays and Saturdays.

TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.