What Can Be Rolled Over

• You cannot roll over non-qualified assets in an estate. This means savings, brokerage accounts and non-qualified annuities are subject to estate taxes and must be distributed according to trust or will directives. The IRS allows rollovers with all IRA, 401k, 403b and all other qualified plan assets. A rollover is a tax-free transaction taking money from one qualified plan and moving it into another qualified plan. When taking an inherited IRA, the rollover goes into what's known as a beneficiary IRA.
  
  

Beneficiary IRA

• Beneficiary IRAs function under the same structure as the inherited IRA. If a traditional IRA is inherited, it must remain in a traditional beneficiary IRA. The same is true for a Roth IRA. The beneficiary IRA must be titled with the original owner's name, date of death and the designated beneficiary name. Under this structure, the beneficiary may continue the tax-deferred growth of the IRA while taking annual required distributions based on the beneficiary's age. Less is required in distributions reducing taxes.
  
  

Effect on Taxes

• IRA assets are included in the taxable estate regardless of whether a distribution is taken or the entire account is rolled into a beneficiary IRA. As a result, there is no effect on federal estate transfer taxes. The 2011 estate transfer tax rate is 35 percent on estates over $5 million. Though there is no benefit with estate taxes, there is a benefit is with income taxes. If a beneficiary takes a lump-sum distribution, the entire IRA is added to income. Taking distributions over time through a beneficiary IRA distributes less each year, giving heirs more control over how much is paid in any one year.
  
  

Other Options

• Spousal beneficiaries have the most options when inheriting an IRA. All natural person beneficiaries can take the lump sum distribution, a five-year distribution payout or roll the money into a beneficiary IRA. A surviving spouse is also allowed to continue the IRA as if it were her own.
  
  Non-qualified assets that are inherited have no way of avoiding or reducing estate taxes. However, an heir can move inherited assets into tax-deferred annuities to allow funds to grow tax-deferred annuities. This strategy helps grow assets without tax liability until needed later on for retirement income.