A. As the “non-spouse” beneficiary of an IRA (I am assuming here, as you did not specify in your question) four (4) years ago you were limited in your choices of what to do with the money in the account.
Under the five year rule you read about at Motley Fool the entire balance in the inherited IRA account must be withdrawn by the end of the fifth (5th) year following the year that the person from whom you inherited the account went to his/her final audit. If the owner of the IRA account passed away in 2003 you have until December 31, 2008 to take the money from the account. Under this rule you do not have to take any distributions prior to December 31, 2008.
All, or part (see my posting on “Inherited IRA”), of the distribution in 2008 will be subject to federal, and probably state, income tax - but it will not be subject to the 10% premature withdrawal penalty if you are under age 59½.
IRS Publication 590 (Individual Retirement Arrangements) provides information on how to treat distributions from an IRA.
The Pension Protection Act of 2006 changed the rules for non-spouse beneficiaries, effective for tax years beginning after 2006. Ryan Ellis of TAX INFO BLOG (the former “Tax Player”) discusses the new rules in his excellent posting “How to Deal with IRAs from the Beneficiary End”.
I hope I have been of help.