Broker Check

What to Consider When You’ve Inherited Money

May 20, 2019

Inheriting Money?

If so, there are lots of things to consider, and these decisions can come with deadlines and unintended consequences. Here's a checklist of things to think about as you build your action plan.

  • Do your research. What is the source of the funds? If it's a retirement plan or an IRA, the gift may come with deadlines or options that you can't undo if you change your mind. As Stephanie mentions in her blog, this is the time to consider bringing in a professional. A tax preparer can help answer the obvious questions about taxes, a financial planner can help make sure your decisions don't have any unintended negative consequences (like taking the funds from a tax advantaged beneficiary IRA and locking it into a different one that's not as flexible. A planner can also play a role in helping a beneficiary pick which of the distribution options fits best with their own situation.
  • If it's taxable investments. When you receive investments as a gift through inheritance, it comes with some tax benefits. Taking advantage of those benefits requires that you get the new basis for those investments documented properly. This is easily missed by some and can be incredibly hard to go back and fix after the account has been changed or moved.
  • And finally, if its cash here are some steps (in order) to take as you make decisions about how to integrate that cash into your own personal finances:
    1. Establish a fund to cover upcoming expected and emergency expenses.
      Consider: Savings accounts for this. You'll want to keep these funds in a safe place, so the money is ready when you need it.
    2. Pay down or pay off debt. Why? This will help reduce your recurring monthly expenses and can improve your credit score if needed.
    3. Protecting yourself and those around you. Is your own estate plan complete? If not, now's the time to get it done. Is there any insurance you need to put into place? That could include life insurance but more importantly it may be disability income protection or long-term care.
    4. And then, consider your future. What kind of nest egg will you need to live on in your later years if you need or want to stop working? Here's where investing comes in. Depending on your access to a retirement plan, a traditional IRA or Roth IRA would be a good place to start here.

So many things to think of... and while you're doing this, don't forget to enjoy it a little!

Whomever left you those funds did so as a gift because they care about you. It doesn't need to cost an arm and a leg but make a point to do something special for yourself or your family in honor of the loved one who wanted to see you enjoy these dollars.

~ Wendi