Life events · Inheritance

What to do with an inheritance.

The 90-day framework. Educational only — not financial advice.

The single most important thing to know about inheriting money: you don't have to do anything with it in the first 90 days. The second most important thing: doing the wrong thing fast is reversible less often than doing nothing slowly. This page is the 90-day framework — what has deadlines, what doesn't, and what to avoid.

Days 1–30 — park it

1. Open a high-yield savings account if you don't already have one. Park the inheritance. At 4.0%+ APY, $100K earns roughly $333/month while you think. That's real money you keep by not deciding yet.
2. Don't tell anyone outside your household. Windfall news travels. You do not owe anyone an explanation or a loan.
3. Collect the paperwork. You'll need copies of: the will (if any), the death certificate, the account statements at time of death, the appraisal of any real estate, and any 1099-R or K-1 forms the estate sends you.
4. Do not quit your job. The math rarely works, and the decision is reversible only at the cost of reputation and restart.

Days 30–60 — understand what you actually inherited

Every asset class has different tax treatment, and the differences matter:

Cash or checking/savings balances

Simplest. No income tax on the inheritance itself (federal; a few states have inheritance tax — IA, KY, MD, NE, NJ, PA). Move it to your HYSA or brokerage. Done.

Taxable brokerage accounts

Look up "stepped-up basis." When you inherit investments, the cost basis resets to the value on the date of death — which means decades of embedded capital gains disappear. If Grandma bought Apple at $2 and it was $180 at her death, your basis is $180, not $2. Sell at $185 later and you owe tax on $5, not $183. This is one of the largest tax breaks in the code; don't squander it by rushing.

IRAs, 401(k)s, and other retirement accounts

This is where the biggest mistakes happen. Three scenarios:

• You're the spouse. You have the most options — you can roll the account into your own IRA, treating it as if it were always yours. This is usually the best move.
• You're a non-spouse beneficiary (child, sibling, friend). Under the current rules, you have to empty an inherited IRA within 10 years (the "10-year rule"). You don't have to take required minimum distributions every year; you have to have a zero balance by the end of year 10. The math on how to pace the withdrawals — bunch in low-income years, spread in high-income years — is worth real thought.
• You're a minor child, disabled, or less than 10 years younger than the decedent. You qualify as an "eligible designated beneficiary" and have more favorable rules. Worth talking to a tax pro.

What never to do: Do not cash out an inherited IRA in one shot unless the amount is small. Every dollar comes out as ordinary income, and a single-year cash-out can push you into the top tax bracket on money that could have spread over a decade.

Real estate

Also gets a stepped-up basis. If you plan to sell soon, the capital gain is calculated from the date-of-death value, not the original purchase price. Get a professional appraisal dated as close to death as possible — this is the number your future tax return will reference. Do not skip the appraisal; the IRS does not accept "we think it was worth $X."

A house you plan to live in

Different question. Can you afford the carrying costs (property tax, insurance, maintenance) on your current income? If not, inheriting the house is inheriting a recurring cost, not an asset. Run the numbers.

Life insurance proceeds

Generally income-tax-free to the beneficiary. Moves to your bank account as cash. Same routing logic as any other cash inheritance.

Days 60–90 — the routing

Now you can think about what to do with it. The order matters:

1. Emergency fund to 6 months. If yours is thin, top it up. This is the highest-return dollar you will spend — not in interest, but in optionality.
2. High-APR debt. Credit cards, personal loans above 10% APR. Pay them off. Math is not close.
3. Max current-year tax-advantaged accounts. Your Roth IRA ($7,000 in 2026 if under 50), your HSA if on a high-deductible plan ($4,300 individual / $8,750 family), your 401(k) to the match at minimum. Use the inheritance to fund the contribution, and use your paycheck to live on.
4. Mortgage paydown — maybe. If your rate is above ~6%, paying it down is a guaranteed return at your rate. If it's below 4%, the math usually favors investing the cash in a taxable brokerage long-term. Between 4% and 6% is where it depends on your tax bracket, risk tolerance, and whether the house is your forever home.
5. Taxable brokerage. A low-cost total-market index fund is what most households choose for the long-term portion. Not exciting, historically effective.
6. One thing that's just for you. If the inheritance is substantial, earmark 3–5% for something the person who left it to you would have wanted you to enjoy. This is not frivolous — it's how you separate the windfall from your existing life without blowing it up.

What not to do

• Don't buy a new car. The depreciation on the drive-off is real money. If you need a car, buy a modest one, out of your normal budget.
• Don't invest in a friend's business. Inheritances attract pitches. The answer is "I'm not making any investment decisions for 90 days."
• Don't lend money to family. If you want to give, give — and know you're unlikely to be repaid. Loans between family members damage both the finances and the relationship.
• Don't rush to "invest in the market while it's down." Dollar-cost average into your long-term portfolio over 6–12 months. Timing the bottom is a game even professionals lose.
• Don't forget the estate tax filing. The estate may have required filings (federal Form 706 for estates above the exemption, state filings vary). If you're the executor, a CPA or estate attorney is required. If you're just the beneficiary, confirm the estate's CPA has the information they need from you.

When to get a human

A fee-only fiduciary is worth an hour if:

• The inheritance is $250K+ and includes a mix of asset types.
• You inherited a house and are trying to decide whether to sell, rent, or move into it.
• You inherited an IRA and you're subject to the 10-year rule.
• You're over 50 and the inheritance materially changes your retirement timeline.
• There's family conflict around the estate.

Match me with a fee-only advisor →

---

This page is educational only and does not constitute personalized tax, legal, or investment advice. Inheritance tax, cost basis, and IRA rules vary by state and by specific estate structure. Talk to a licensed tax professional or estate attorney before making irreversible decisions.