From Kiplinger · · 3m
Where to Put Inherited Money
An inheritance lands in the middle of grief, so the first job is protecting it, not investing it.
In brief
An inheritance lands in the middle of grief, so the first job is protecting it, not investing it. Park the money somewhere safe and insured, learn exactly what you inherited and how it is taxed, then match each dollar to when you will need it. Originally reported by Kiplinger.
Money arrives with grief
An inheritance can change your finances overnight, but it usually shows up alongside loss. That makes it harder to handle than a bonus or a lottery win.
“An inheritance can rapidly change your finances, but it often arrives alongside grief.”
You can wait
No rule says you must decide fast. Time lets you work out what you actually inherited, what your priorities are and what you want the money to do.
“You don't need to make major financial decisions right away.”
Protection comes first
Where the money ends up depends on your finances, your timeline and the type of assets. Step one is simply keeping it safe while you figure the rest out.
“When you first receive an inheritance, your priority can simply be protecting the money.”
Cash is the most common gift
In a Morning Consult survey for Kiplinger, older parents named cash and savings as the top asset in their estate, ahead of real estate, stocks and life insurance.
Park it somewhere liquid
A high-yield savings account, a money market account or a short-term CD all work as a holding pen. Savings and money market keep the cash easy to reach.
CDs lock you in
Pull money out of a CD before the term ends and you may pay an early withdrawal penalty. Only use one if you are sure you will not need the cash sooner.
Watch the $250,000 line
Deposit insurance generally covers $250,000 per depositor, per institution, per ownership category. A bigger inheritance needs splitting across banks or categories.
Confidence is not urgency
Seventy percent of adult children say they feel prepared to manage an inheritance, and 40% call themselves very confident. Feeling ready still does not mean acting today.
“But being prepared doesn't mean you need to act immediately.”
Know the tax rules
The federal government usually does not tax you for receiving inherited cash, though income the assets generate can be taxable. Estate tax is normally paid by the estate.
Some states tax heirs
Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania levy an inheritance tax, and what you owe often depends on how you were related to the person who died.
Do not cash out blindly
Inherited IRAs, brokerage accounts and real estate each carry different rules. Traditional IRA withdrawals can bring income tax and required distributions.
“don't automatically cash out investments or retirement accounts before learning about the potential tax consequences”
Expectations do not match
34% of adult children expect to owe tax on an inheritance, against just 20% of parents who expect their kids to owe. If you are unsure, ask an estate attorney or tax pro.
Pick a job for the money
Chase purpose before returns. High-interest debt, an emergency fund, retirement catch-up, a near-term goal, long-term growth, or a small slice for something you will enjoy.
Match the timeline
Needed within a year or two: savings or money market. A few years out: split between savings and investments. Many years away: a diversified portfolio, market swings included.
Redraw the bigger plan
A windfall can move up retirement, clear a mortgage or fund a gift. Talk to a planner, then revisit your own estate plan and beneficiary designations.
“Used thoughtfully, that final gift from a loved one can provide greater financial security and flexibility for years to come.”
The essence
Park the money somewhere safe and insured, learn exactly what you inherited and how it is taxed, then match each dollar to when you will need it.
