What to Do With an Inheritance: A Guide to Managing Inherited Wealth
Inheriting wealth can be both a blessing and a burden. Even if you sensed that a family member might remember you in their will, there are often more facets to the inheritance process than you may have considered. Here’s what to keep in mind if — or when — it happens to you.
This article is for informational purposes only and isn’t a replacement for personalized advice. Consider speaking with a legal or tax professional before making decisions about what to do with an inheritance.
First Steps: What to Do When You Inherit Money
Take Your Time Before Making Decisions
If someone cared about you enough to leave you an inheritance, you may also need time to grieve and process their loss. That’s important — and many of the bigger decisions about your inheritance can likely wait.
You’ll typically make more informed decisions about managing inherited money once some time has passed and the initial emotions have settled.
Don’t Go It Alone
Between the laws, choices, and potential pitfalls involved, managing an inheritance is rarely straightforward. The knowledge an experienced financial or legal professional brings to the process can prove critical — especially if you’re unfamiliar with estate or tax rules.
Consider Your Own Family’s Financial Picture
Receiving an inheritance can shift the course of your own financial strategy. As part of your inheritance financial planning, take time to consider how this new wealth fits with your existing goals, obligations, and family needs.
Tax Considerations: What to Know About Inherited IRAs
If you’ve inherited an IRA, understanding the tax implications is essential.
Under the SECURE Act, most non-spouse beneficiaries are generally required to fully distribute an inherited IRA by the end of the 10th calendar year following the year of the account owner’s death.
Important update: IRS final regulations clarified that if the original account owner had already reached their required beginning date for RMDs (meaning they had already started taking required distributions before passing), the beneficiary must also take annual required minimum distributions during years one through nine — not just deplete the account by year ten. If the owner died before reaching their required beginning date, annual withdrawals generally aren’t required during those years, though the account must still be fully distributed by the end of year ten.
Certain beneficiaries may follow different rules, including:
- A surviving spouse of the IRA owner
- Disabled or chronically ill individuals
- Individuals not more than 10 years younger than the IRA owner
- Minor children of the IRA owner (until they reach the age of majority)
Because these rules carry real tax consequences and have changed more than once in recent years, it’s worth confirming your specific situation with a qualified tax professional before deciding how to handle managing inherited money from an IRA.
Stay Informed as Estate Laws Change
Estate laws have seen meaningful changes over the years — including the inherited IRA rules above — so what you thought you knew may no longer be accurate. Staying current, or working with a professional who does, helps you avoid costly missteps.
Make Sure the Inheritance Fits Your Situation
It’s natural for emotion to play a role in what to do with inheritance money, and you may feel inclined to leave it exactly as you received it out of respect for your relative. But it’s worth asking: does the inheritance actually fit your financial situation?
A financial professional can help you evaluate whether the inheritance aligns with your overall goals, time horizon, and risk tolerance — and whether any adjustments make sense given your circumstances.
For Southwest Florida families working through this process, a Fort Myers-based fiduciary financial advisor can walk through inheritance financial planning alongside your broader estate and retirement strategy.
Frequently Asked Questions
What should I do first when I inherit money?
Give yourself time. Major decisions about an inheritance can usually wait until you’ve had space to grieve and think clearly. Rushing into decisions immediately after a loss often leads to less informed choices.
Do I have to take money out of an inherited IRA every year?
It depends on when the original account owner died. If they had already reached their required beginning date for RMDs, you’re generally required to take annual required minimum distributions in years one through nine, with the full balance distributed by the end of the 10th year. If they died before reaching that age, annual withdrawals typically aren’t required, but the account still must be emptied by the end of year ten.
How long do I have to withdraw money from an inherited IRA?
Under the SECURE Act, most non-spouse beneficiaries must fully distribute an inherited IRA by the end of the 10th calendar year following the year of the original owner’s death.
Are there exceptions to the 10-year rule for inherited IRAs?
Yes. A surviving spouse, disabled or chronically ill individuals, beneficiaries not more than 10 years younger than the account owner, and minor children of the owner may be subject to different distribution requirements.
Should I keep an inheritance invested the way it was left to me?
Not necessarily. While it’s natural to want to preserve an inheritance out of respect for the person who left it, the investments may not fit your financial goals, time horizon, or risk tolerance. A financial professional can help determine whether adjustments make sense for your situation.
