Pay Taxes on Inheritance?

What is the deal with people having to pay taxes on money that is inherited?

QUESTION: A listener thought people could inherit money tax free up to a certain amount.  Why does the previous caller have to pay taxes on the money he inherited from his father’s retirement savings?

ANSWER: You cannot roll an inherited, tax-treated retirement account to your IRA or 401-K unless it is your spouse’s retirement account.  These retirement investments are pre-tax and that’s why you have to pay income taxes on it, not because it’s an inheritance.  There is no penalty though.