Losing a loved one is never easy and dealing with their financial affairs can be an additional burden during a difficult time. However, if you’ve been named as a beneficiary in a will or trust, you may be facing the unexpected challenge of managing a large cash inheritance. While this can be an exciting prospect, it’s crucial to approach the situation with careful consideration and planning.
Finding the Right Home for Your Inheritance
The first step is finding a secure and reliable place to deposit your inheritance. While keeping it in your wallet or under your mattress might seem tempting, this is not the safest option. Instead, consider depositing the funds in a federally insured bank or credit union account. This will protect your money in case of bank failure and ensure it’s readily accessible when you need it.
Short-Term Parking: Savings Accounts for Immediate Needs
For the short term, a savings account is a good option for your inheritance. This allows you to access the funds quickly and easily if needed, while also earning some interest. However keep in mind that most savings accounts offer low interest rates so you won’t see significant growth in your money over time.
Long-Term Planning: Exploring Investment Options
After the initial shock of inheriting something has worn off, it’s time to consider the long term. To maximize the potential of your inheritance, you must consider your investment options because simply putting a sizable portion of your money in a savings account won’t yield noticeable returns.
Seeking Expert Guidance: Financial Advisors for Informed Decisions
Making informed financial decisions with a large inheritance can be overwhelming, especially if you’re not familiar with investing or financial planning This is where a financial advisor can be invaluable They can help you develop a personalized investment strategy that aligns with your financial goals, risk tolerance, and time horizon.
Investing for Your Future: Diversification and Growth Potential
When investing your inheritance, diversification is key. Spreading your money across different asset classes, such as stocks, bonds, and real estate, can help mitigate risk and ensure your portfolio is well-balanced. Additionally, consider investing in growth-oriented assets, such as stocks or mutual funds, to potentially increase your returns over time.
Managing Debt: Prioritizing Financial Stability
Using your inheritance to pay off outstanding debt, such as credit card debt or student loans, can be a prudent financial decision. Your monthly cash flow can be improved and your overall financial health can be preserved by paying off high-interest debt.
Tax Implications: Understanding Your Responsibilities
In most cases, you won’t have to pay taxes on a cash inheritance at the state or federal level. However, there are a few exceptions to keep in mind. Some states impose inheritance taxes, and if your inheritance exceeds a certain threshold, you may be subject to federal estate taxes. It’s crucial to consult with a tax professional to understand your specific tax obligations.
Making Informed Decisions: Avoiding Emotional Spending
Receiving a large inheritance can be tempting to splurge on luxury items or impulsive purchases. However, it’s crucial to resist the urge to spend emotionally and instead focus on making sound financial decisions that will benefit you in the long run.
Seeking Professional Help: Financial Advisors for Sound Guidance
Navigating the complexities of managing a large cash inheritance can be challenging. Consult a professional if you’re feeling overwhelmed or unsure of what to do next. A financial advisor can offer you individualized advice and support as you decide how to handle your inheritance.
Remember, receiving a large cash inheritance is a significant event that requires careful planning and consideration. By taking the time to understand your options, seeking expert advice, and making informed decisions, you can ensure that your inheritance serves you well and helps you achieve your financial goals.
3 Things to Do When You Receive an Inheritance
Taking careful consideration is necessary when attempting to leverage the liquid funds, as there are several beneficial approaches to consider.
As you work on a plan for your inheritance money, here are three advisable steps:
- Put the money in a secure account: The first thing you should do with a lump sum payment is put it into a bank account that is insured by the FDIC. This will enable storage while you decide how to utilize your inheritance most effectively. The maximum coverage for each FDIC-insured account is $250,000. If you inherit more than this, you might want to think about a few methods to strengthen your insurance.
- Create a list of your top priorities. What do you want to achieve with your money? Are you paying off high-interest debt? Are you on track to retire? Do you want to honor the legacy of the person who gave you the inheritance? Give your money a purpose by allocating it in line with your most significant financial objectives and personal values.
- Speak with an Expert Depending on the amount of your inheritance, you might need to enlist the assistance of a professional (or group of professionals) to offer financial planning advice. A financial advisor can assist you in determining and carrying out the best plan of action for your priorities. They can also offer advice on things like estate planning, investing, and tax planning.
3 Things to Avoid Doing When Receiving a Lump Sum
As you can probably imagine, its easy to make rash decisions when receiving a lump sum of money. Like anything related to personal finance, it can be just as advantageous to make the right decisions as it is to avoid making the wrong ones.
Here are the three main actions to avoid taking immediately upon receiving inheritance money:
- Don’t quit your job right away. It can take millions of dollars to safely secure the income you need for the rest of your life, depending on a number of factors including your lifestyle, expectations for your life expectancy, and investment strategies.
- Avoid spending before planning. It can be tempting to treat the family to a lavish vacation or to purchase the luxury car of your dreams. While occasional indulgence is acceptable, it makes more sense to integrate your spending into a larger financial strategy.
- Don’t take large amounts of money out of inherited IRAs. You may be able to avoid the early withdrawal penalty imposed by the IRS in 2010 on an inherited IRA, but you may still owe income tax when you take money out of it. Additionally, if the withdrawal is significant enough, you might be placed in a higher tax rate.
Inherited $400,000, What Should I Do With It?
FAQ
Can I deposit a large inheritance check into my bank account?
Do you have to report inheritance money to IRS?
What to do if you inherit $100,000?
Where should a large cash inheritance be deposited?
The best place to deposit the large cash inheritance is in a federally insured bank or credit union account. Putting the inheritance in a savings account is a good option for the short term. When the time is right, you should decide if there’s a better place for it, especially since most savings accounts don’t offer compounding interest.
Can you deposit a large cash inheritance in a savings account?
You can deposit a large cash inheritance in a savings account, either through a check or direct wire to your bank. The bigger question is what you should do with it once it’s deposited. While that is ultimately your decision, it helps to have a plan. The more prepared you are before you get the inheritance.
What should I do if I receive a large inheritance?
Here’s a step-by-step guide for anyone who has received or is anticipating receiving a large inheritance. If you inherit a large amount of money, take your time in deciding what to do with it. A federally insured bank or credit union account can be a good, safe place to park the money while you make your decisions.
What should I do if I inherit a large amount of money?
If you inherit a large amount of money, take your time in deciding what to do with it. A federally insured bank or credit union account can be a good, safe place to park the money while you make your decisions. Paying off high-interest debts such as credit card debt is one good use for an inheritance.