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How old was your husband when he passed away?
Yes, you will be required to take the mandatory distribution this year on behalf of your husband. Typically the way it works is that you would move your husband's IRA in to a new "Inherited IRA" account or in to your own IRA account if yo have one. At the time you put this transfer into process, the investment firm that is holding your husband's IRA will figure what the mandatory distribution was for this year. That amount will be withdrawn from his IRA and the balance of the funds will then be put into your IRA account.
As far as whether or not you can withdraw mutual funds rather than cash, the answer is yes, you can. You would just specify the shares that you want moved, and the value of those shares at the close of business that day would be the amount that was reported as the minimum distribution and this is what would be reported to you on the 1099 form.
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