"Taking the tax out" does not mean that you have paid taxes on the 401(k) distribution. It means that money has been sent to the IRS, where it is being held, pending receipt of your tax return.

The 60 day limit on rolling 401(k) distributions into an IRA begins when you receive the money, not when the decedent passes away. Ordinarily you should have an option as to whether or not the distribution comes with the withholding of taxes, but it sounds like you did not contact the 401(k) custodian in time so they decided for you.

What you ought to do depends upon your goals. If you wish to receive the money in your checking account and use it like any other cash funds, you will have to pay personal income tax on it like any other ordinary income.

If you wish to maintain the money's tax-deferred status, then you should immediately roll it over into an IRA. The amount you put into the IRA should not necessarily be the amount of the check you receive; in fact it can and should be the amount of the check you receive, plus the amount that was withheld by the custodian. If you do your taxes right you'll get that money back from the IRS at tax time; unfortunately, that'll be a year's wait at this point as it is already 2016.

A third option would be to instruct the custodian to undo their withholding and send you a check for the full amount. Again, in my understanding this is always the recipient's decision and the custodian must honor it when making a distribution, although I do not know whether they must reverse something that has already been done. I know it can be reversed, it just requires extra paperwork on the custodian's part.

the thought of investing money and risking loss when I could just have it sit in a savings account instead is making me question my next move

The investment that you make with this money has absolutely nothing to do with the money's tax-deferred status. You can put it in a savings-account-type vehicle whether you drop the tax-deferred status and pay income tax on it this year; or whether you maintain the tax-deferred status by putting it in a Rollover IRA. You could put it in high-risk investments either way, too. That is a separate decision from the one about whether or not to maintain the money's tax-deferred status.

If you decide to maintain this money's tax-deferred status and put it into an IRA, I advise not mingling it into your Inherited IRA. Instead, open a new Rollover IRA account for the purpose of receiving these funds. If the IRS or another entity has questions about this transaction 5, 10, or 20 years from now, keeping the two accounts separate will make it much easier to answer those questions.

You're going to need to keep careful records - transaction records with dates - for all of this. You'll be getting some tax paperwork from this, including a 1099-R and possibly a 5498, and mind that you keep those for your tax preparer.

Feel free to ask any more questions.