Question and background:
I am 42 years old and my aunt passed away in 2013 at age 73. I inherited her IRA that she had already begun taking distributions from. Am I required to keep taking distributions? If so, how much?
I'm very sorry about the loss of your aunt. It's nice that she remembered you in this way.
Yes, you will be required to take what are called "Required Minimum Distributions" (RMDs), with the first one to be taken by December 31 of this year. These are critically important as the IRS will levy a 50% penalty tax (that was not a typo...50%!) on any RMD not taken.
RMDs can be complex and the amount depends on a host of factors, including if the original IRA owner died before or after their Required Beginning Date, spouse vs. non-spouse, IRS tables, a changing account balance on December 31 of each year, etc.
You'll want to set-up an Inherited IRA--sometimes called "Beneficiary IRA"--and transfer the funds (or your portion, if there are multiple beneficiaries) from your aunt's IRA into it. This gives you the option of stretching the RMDs over your own life (per IRS tables) with the potential for further tax-sheltered growth. Note: you can always take out more than your RMD, just not less.
It will be critical to make sure the account is titled correctly and that it's a direct transfer from the custodian of your aunt's IRA to the custodian for your new Inherited IRA. There are taxable implications if the account is paid to you instead of directly transferred.
Since this is an Inherited IRA, you won't be subject to the 10% federal penalty tax for distributions before age 59 1/2, but you will have to report the distribution as taxable income when you file your annual return.
Assuming your aunt took her RMD in 2013, your 2014 RMD will be based on the December 31, 2013 account balance (or your portion, if multiple beneficiaries), divided by the factor from the IRS Single Life Table for your age at December 31, 2014.
For example, if the Inherited IRA is $100,000 (on December 31, 2013) and you're 43 at the end of this year, you'll need to start with the IRS multiple of 40.7 for a 43 year old. $100,000 divided by 40.7 = $2,457 RMD for 2014.
Then next year, you'll use the December 31, 2014 account balance and subtract one from the IRS multiple (40.7 - 1 = 39.7). And so forth.
If you don't want the headache of handling this each year, some custodians will do it for you. And depending on your broader financial picture, it may be the impetus to retain a good financial planner who can handle this annually as well as help you make sure you're also on track in the other financial areas of your life.
Hope this helps. Feel free to contact me if you'd like to discuss your situation in more detail. All the best!