Can I cash in an IRA which has a value of $16,000 ...

I agree with Tracy.  Also, if you are under 59-1/2 years of age, you will also have to pay a 10% penalty on top of tax that will be due on your $16,000.  If your health is at stake, no amount of money should matter.  Good luck, and I hope your health improves rapidly.

Since you're already receiving checks, I'm going to assume you are over 59 1/2.

The withdrawal will be subject to regular federal and state income taxes at whatever bracket you're in.  If possible, you should only withdraw what you absolutely need at this time to minimize the tax bite, or at least split it in 2 and withdraw 1/2 now and the other half in 2009.  Also, since the market is down, the longer you can wait for it to recover, the better.  The other consideration is that the addition of the IRA money to your other income may make more of your Social Security (if you're already collecting) subject to income tax.  The addition of the withdrawal could also make your tax bracket change.

Please consult a tax professional in your area to help you with this.  Make sure they're at least an Enrolled Agent and stay away from the the big "Block" and other franchises.  Some know what they're doing, but far more don't!

 Because a person my be already collecting checks does not mean they are beyond 59 1/2.I have been collecting on my mother's accounts since I was 40.If the original account holder has reached a certain age,minimum distributions are required ,whether you want it or not.Also there are no taxes on a Roth Ira,as long as you have reached the age of 59 1/2.

Note I said "assumed".  Your situation is particular to non-spousal inherited IRA's.  The rules have also changed in the last few years, providing more options for how the money is to be handled - see "stretch IRA's".  Every person's situation is a bit different, and it's one of the reasons I recommend talking to a professional so they can get the whole story and help decide was is best for that particular person.

Eva

Are you crazy!! Don't touch that!!! Trust me after 6-1 year, the hospital will come back and take 10 cents on a dollar. I use to due collection!1.