I just inherited an IRA from my father. Not knowing anything about IRAs, I'm concerned that I made a bad decision about how to set it up with the credit union. The IRA is now listed with me as the owner, although the beneficiary designation form does indicate my dad as the original owner and me as the designated beneficiary receiving the funds.

Now that we're back home and I have an opportunity to do some research, it appears that I should have had the IRA retitled. Is it too late?

Barb Pick, Denver

Can this inherited IRA be saved? Probably. As long as the individual retirement account was left intact, and the problem is simply that it needs to be retitled to reflect that the reader inherited it, “it sounds like it might be able to be saved,” says Ed Slott, an IRA consultant in Rockville Centre, N.Y.

Inherited IRAs don't work like regular IRAs. If you inherit an IRA from anyone other than your husband or wife, you can't roll it into your own IRA. And you can't consolidate IRAs you inherit from different people into one account.

So if the reader above had withdrawn the assets from her father's IRA and deposited them into her own IRA, she would have undone the inherited IRA, making all its assets taxable, Slott says. She also would have to remove any assets she deposited in her IRA above her allowed IRA-contribution limit for the year — $5,000 if she's younger than 50, or $6,000 if she's 50 or older — to avoid further penalties.

But it appears that the account was left as is, except for being improperly titled. Thus, the error should be considered an administrative one that can be fixed. The reader would need to retitle the IRA so it's clear that the owner died and that she is the beneficiary. Slott recommends using this format: John Smith IRA/ Deceased 1/1/2009/ FBO (for the benefit of) Mary Smith as beneficiary.

Make sure that the credit union gets the titling right not only on the statements it sends to you, but also on the internal records it uses for reports to the IRS, he says. Some large IRA custodians use the beneficiary's name on the statements sent to him or her, but use the formal titling (as in the “John Smith” example, above) on the information it sends to the IRS to avoid confusing beneficiaries.

After you have retitled the inherited IRA, you can stretch out withdrawals from the account across your lifetime, rather than being forced to withdraw the funds sooner. That gives you a chance to extend the time that tax-deferred earnings can accrue, possibly increasing your inheritance.

With your own IRA, you have to start withdrawing funds by April 1 of the year after the one you turn 70½. But with an inherited IRA, you generally have to make withdrawals every year. The first has to be made by Dec. 31 of the year following the year of the original owner's death.

If you inherit an IRA along with other heirs, such as siblings, you can split up the account, allowing each heir to spread withdrawals across his or her own life expectancy. Otherwise, you get stuck using the life expectancy of the oldest heir.

One other note: Just because you have to leave the IRA intact doesn't mean you're stuck with the original investment or custodian. You can use a trustee-to-trustee transfer to move the account directly to another financial institution as long as the current custodian allows it, Slott says.

Union-Tribune