In a previous article, I explained how the IRA minimum withdrawal rules affect spouses who inherit their husband's or wife's IRA. But what if you inherit your Uncle Henry's IRA, or any IRA that belonged to someone other than your spouse? Well, those rules are different. And it's important to understand them, since if you fail to take minimum withdrawals according to IRS guidelines, you can be socked with a penalty equal to 50% of the shortfall. And your Uncle Henry didn't spend all those years saving for .

So do him a favor and pay attention here. Trust me, the payoff will be well worth it.

Scenario 1: Uncle Henry dies before April 1 of the year after he turned 70 1/2
Still with me? I know the title above is confusing. But basically what you need to know is whether the IRA owner turned 70 1/2 last year (2012). And if he did, did he die before April 1 of this year (2013)? If so, you fall under this scenario. You're also in this camp if Uncle Henry was simply younger than 70 1/2 when he passed away.

Under the IRS rules, a nonspouse beneficiary named by the deceased account owner in this situation must begin taking minimum withdrawals over the beneficiary's life expectancy. (You can, of course, always take out more than that if you'd like, just keep an eye on how that might affect your tax liability for that year.) The first withdrawal must occur by Dec. 31 of the year following the year the account owner dies. In subsequent years, additional minimum withdrawals must be taken by Dec. 31 of each year. These withdrawals are required in order to avoid the 50% penalty.

So how do you know how much you need to withdraw? You need to crunch the numbers by dividing the account balance at the end of the previous year by your life expectancy. You can look up your life expectancy using Table I in Appendix C of IRS Publication 590. (Individual Retirement Arrangements), which is available on the IRS Web site.

Example 1:
Say your beloved Uncle Henry died in 2012 at age 68, and you're the sole designated beneficiary of his traditional IRA. You must take the initial minimum withdrawal by the end of 2013. Until then, you can leave the account untouched, which from a tax perspective, is a smart thing to do since it allows the account to grow tax-deferred (or tax free, in the case of a Roth IRA). To figure the minimum withdrawal amount for 2013, you must first determine the appropriate life-expectancy divisor to use. That depends on your age as of the end of 2013. Let's assume you're 48 on Dec. 31, 2013. Using Table I, you'll find the single life expectancy for a 48-year-old person is 36.0 additional years. Now divide the Dec. 31, 2012, account balance, say $250,000, by 36.0 to come up with your 2013 minimum withdrawal amount of $6,944. You must take out that amount (at least) by Dec. 31, 2013, to avoid the 50% penalty.

Your 2014 minimum withdrawal must be taken by Dec. 31, 2014. The amount will equal the Dec. 31, 2013, account balance divided by 35.0 (the single life-expectancy figure for someone age 48 minus 1.0 because you are now a year older), and this pattern will continue on for each subsequent year as long as you live. The same drill applies if you inherit Uncle Henry's Roth IRA or SEP account.

Exception:
In this scenario, you do have one other option: the so-called five-year rule. It simply requires you to completely liquidate the inherited account by no later than Dec. 31 of the fifth year after the year the original account owner dies. Until that date, you can withdraw as much or as little as you wish. For example, if Uncle Henry died in 2012, you'd have until Dec. 31 of 2017 to liquidate his account and pay the resulting tax hit, under the five-year rule. But if you don't need all that money over the next five years, following the five-year rule isn't the tax-smart choice. Why? Because you'd forgo the many additional years of tax-deferral advantages allowed if you choose to gradually liquidate the account over your life expectancy. Of course, in some cases beneficiaries have little choice but to use the five-year rule, should the IRA trust document require it.

Scenario 2: Uncle Henry dies on or after April 1 of the year after turning 70 1/2
In this case, you simply follow the procedures explained above in Scenario 1. In other words, you must take your initial minimum withdrawal by Dec. 31 of the year after the year the account owner dies using your own life expectancy to calculate the minimum withdrawal amount. The only difference in this scenario? The five-year rule isn't an option. You must also arrange for the deceased account owner's final withdrawal by Dec. 31 of the year of death. That amount is calculated as if the account owner were still alive at year-end, using taxpayer-friendly rules.

Once again, the same rules apply if you inherit a Roth IRA or SEP account from the original account owner.