Inheritance or windfall
What to do with inherited money
Start with the checklist
Download my checklist of what to consider after a sudden wealth event. No email needed.
The first 30 days: park it and breathe
Put the money somewhere safe and boring, like a savings or money market account at a bank you already trust, and leave it there while you think. Nothing about sudden money is urgent except a few real deadlines.
Ask the estate's executor or the account custodian what has to happen and when. Hold off on investment pitches, loan requests, and big purchases until you can see the whole picture. Then write down what you inherited, where each piece sits, and what the paperwork says. That one page makes every later decision easier.
Inherited cash and investments are not the same as an inherited retirement account
Property you inherit, like cash, a house, or a brokerage account, generally isn't counted as your income. What it earns later, like interest or dividends, may be taxable, and selling something can have tax consequences. Some states and estates have their own taxes too.
An inherited IRA or 401(k) is where the real clocks live. Most beneficiaries who aren't a spouse must empty the account within 10 years of the year the owner died, and some must also take withdrawals along the way. Spouses, minor children, and a few others have different options. Withdrawals are often taxable, so timing can change your tax bill.
Your relationship to the owner and when the owner died both change the answer, so check the rule for your situation. These IRS pages are a good place to start.
The emotional and family side
Inherited money rarely arrives alone. It can come with grief, guilt, and a little head trash about whether you deserve it, plus siblings, in-laws, or friends with opinions.
You don't have to make decisions on anyone else's schedule. Work out what the money is for before you tell people what you plan to do with it.
Pay off debt, invest, or spend?
Usually it's some of each, and the mix depends on your goals. Paying off high-interest debt may free up cash flow. Investing may help money grow over time, but investments can lose value. Spending on something you've wanted, like a trip or a home repair, can be a fine use of it if it fits your plan.
Before you pick, look at your emergency savings, retirement savings, debts, and taxes together. Then ask what you would regret not doing in five years.
Update your own beneficiaries and estate documents
An inheritance changes your own estate. Review the beneficiaries on your retirement accounts and insurance, your will, and any trust or power of attorney. Beneficiary forms generally override a will, so check them first. An estate attorney can help with the legal documents.
How I help with an inheritance
- 1Parking the money somewhere safe while you catch your breath.
- 2Sorting out the taxes on what you inherited, including inherited IRAs and their withdrawal rules.
- 3Deciding what to pay off, what to invest, and what to spend.
- 4Updating your own beneficiaries and estate documents.
- 5Making choices that line up with your values.
Usually not as soon as it feels. Some deadlines are real, like rules on inherited retirement accounts, so we find those first and give everything else time.
It depends on what you inherited. Property you inherit generally isn't counted as your income, but what it earns later may be taxable, and inherited IRA or 401(k) withdrawals often are. Timing can change your tax bill a lot, and some states have their own taxes.
Somewhere safe and easy to reach, like a savings or money market account at a bank you trust, while you gather the facts. It's a holding spot, not a long-term plan. Rates and insurance limits vary by bank.
It depends. A paid-off mortgage may lower your monthly costs, but it also uses cash you might need for emergencies or retirement, and your loan's interest rate matters. We compare it with your other options before you decide.
The rules depend on your relationship to the owner and when the owner died. Most beneficiaries who aren't a spouse must empty the account within 10 years of the year of death, and withdrawals are often taxable. Check the IRS beneficiary page linked above, then confirm your own situation with the account custodian or a tax professional.
A planning project, starting at $1,000, can cover the decisions in front of you. If you want ongoing help afterward, we can talk about that too.