TL/DR: invest it to match up with your chosen AA. ESPECIALLY if you've got a decade or two before you really need to tap into it. Use it to hold any bonds if you don't already have you allocation to hold (if you have bonds in your AA). If you're planning real early retirement (like less than 10 years?) I'd get that stuff figured out and set the iIRAs up so they are easy to rebalance from there and leave your taxable alone if possible to minimize the buy/sell stuff in those (tax avoidance is a beautiful thing).
And so sorry for your loss of your loved one. It is a wonderful gift they left you, but it won't make up for losing them... do take whatever time you need to grieve and help your family and friends. A few months or a year isn't going to hurt much, and it is a good thing to tackle this stuff with a clear head and purpose.
Long and boring story you probably wished you hadn't read after:
I inherited a traditional IRA from my dad in my late 30s. I am now in my early 40s, and FIREd about 3 years ago, so I'm actually living 100% off my entire portfolio.
I set it up to work with my chosen asset allocation. I use a 3 fund lazy index fund portfolio - I hold a total stock market, total bond market and a broad REIT index fund.
As soon as I'd figured this stuff out (took me about 7ish months - big pink puffy heart to Jim Collins), I sold off all the old stuff that was set up for my father (I'd left it alone until I got my ducks rowed). I have all of my bond index fund in there just because it needed to go into a tax deferred account anyway. The remainder is my entire REIT percentage (REITs throw off dividends too, so good to keep in a deferred acct) and a nice chunk of the total stock index.
I use the RMDs, along with my LTCG/dividends as my living expenses.
I pay zero tax as I'm married filing jointly and live in a tax free state and we don't take much extra out other than what we need, and it turns out that's not much. I do have the RMD withhold 10% federal tax to cover any possible wobble. I may remove that in a year or two as I'm getting damn good at estimating the overall year's dividend/cap gain distributions and have continued to owe nothing on our ACA and most of the time they pay us a few extra bucks at tax time because we came in under our income estimate.
An iIRA is a pretty amazing hybrid account. Tax deferred, and yet you can pull ANY TIME from it with no penalties (10% penalty on any other IRA withdraw unless special circumstances before 59.5). All distributions count as taxable income, but at a lesser rate than normal earned income or pensions (can't confirm the pensions part, but have come across that in my readings). I take my RMD early in the year, then get a small dividend thrown out by my taxable (which is not reinvesting) and a larger div/cap gain chunk in December (also taxable account). I figured I have them counting in my income anyway so I take the money generated. Then I may tap the iIRA again late summer/early fall, or wait to see the end of year cap gain/dividend chunk thrown out by the taxable and may take a second distribution from the iIRA at that point to fill up my proposed taxable income bucket if I'd not reached my income estimate by then. Works quite nicely for me.
Some points to ponder:
And as long as you stay under the 15% taxable bracket (married folk get like ~70K cap) you get zero taxes on cap gains/dividends! I'm able to control the amount of money that is seen as taxable income much easier with an iIRA.
And rebalancing is super easy if you have a substantial sized iIRA; I can sell/buy without triggering any cap gains assessments piling on to possibly push my taxable bracket too high, and holding my entire portion of my bonds in there means they're chugging along without throwing off lots of taxable dividends that also could knock me into a higher taxable bracket.
When I was still working, I used the RMD to partially fund mine/spouse Roth IRAs too, so that was nice. You have to have earned income to pay into an IRA, but as long as you made at least the amount you're putting in, they don't care if you fund it from your paycheck or a distribution.
I don't think holding off on tapping the iIRAs is a totally bad idea, but do keep in mind the long term ramifications of only taking the minimum and having that account growing over the next 20-30-50 + years and you only taking the minimums... If you're still working, then be aware that investing that iIRA into decent stock index will cause the RMDs to rise each year and pile into your taxable income the bigger they get. But if you aren't working, it is a really good idea to start tapping it since the sooner you spend it down, the better to avoid having to take RMDs from a huge iIRA that just kept growing, and then hitting 70 and taking your own 401k/IRA distributions... but if that's what happens, this is a great problem to have. Having so much money that you have to pay more taxes eventually? ;)
In my case we do keep our taxable income reasonable low to qualify for that sweet, sweet ACA spot of getting maximum subsidy and cost sharing. I have platinum plated "silver" coverage I pay less than $100/month (per person) for.
In the time I've had my iIRA, I've pulled at least $50K out over 6 years(?) and it's higher than ever. It literally is like a well that keeps topping itself back up and rising a bit more over time.
