What to Do If You Suddenly Inherited $100,000

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Getting a cash inheritance can be exhilarating, making you think about all you could do with the money. Although it could enhance your life, while thinking about what to do with the $100,000, you would be better off if you let the money sit for a bit. Take time to get some expert advice from an investment professional, a certified public accountant (CPA), or an estate-planning attorney.

Unless you already have considerable income, these professionals could give you many ideas about how to make your money go further. You also want to have some time to discuss your options with your family.

Investopedia mentions that if you have not received the inheritance yet, do not count on it. The benefactor may need to use it for expensive medical bills or care in a nursing home. They could also get swindled out of it.

No Federal Taxes to Pay

The federal government does not have an inheritance tax, but it does have an estate tax. This tax is paid out of the estate before the money and other assets are distributed. It is unnecessary to report an inheritance to the Internal Revenue Service, but SmartAsset says you must report any interest earned on that money.

In addition to an estate tax, some states have a cash inheritance tax. Six states will tax you on an inheritance: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Nolo says that if the benefactor lived in a state with an inheritance tax—and you do not, you will likely be required to pay the tax.

Put the Money in a Savings Account

While you take time to grieve over the lost loved one, Citizens suggests putting the money in a safe place. Make sure it is an Federal Deposit Insurance Corp.-insured bank. These banks normally only insure deposits up to $250,000. If you inherit more than that, you will need to split the money so that you do not put more than $250,000 in one bank.

Put the money into a high-yield savings account where it will earn the most interest, Experian says. These accounts will give you more interest than a regular savings account.

Some Things You Should Not Do Right Away

A large sum of money coming into your hands suddenly can make you want to act quickly—and not reasonably. You should avoid quitting your job immediately, especially if you are not yet retirement age. Continuing to work enables you to build your Social Security income so that when you do retire—it can add thousands more to your income each year if you wait.

When people act quickly after receiving an inheritance, they often spend it and end up with little to show for it. They are not made the better for it. By doing careful financial planning first, you can make the money last much longer and put it to multiple uses you will not regret.

List Your Options

After talking to a professional, write down all the options you want to use the money for before spending it. Although you could think of many ways to spend it quickly, here are some ideas you may be interested in:

• Make a Contribution to Charity

Before you spend your money, donate to your church, religious organization, or favorite charity. Make it at least ten percent of your inheritance and be a blessing to them.

• Pay Off Your Mortgage and Other Debt

If you are still paying on a mortgage, car, or credit card debt, consider paying those bills off—or at least reducing your debt. If you can pay it off, it will enable you to keep more of your money each month, pay less interest, and possibly put more into your retirement savings.

• Create or Expand an Emergency Fund

It is always good to have some money available for those surprise events when you need cash quickly. Whether it is for medical emergencies, car repairs or replacement, or a temporary stay in a hotel if your home needs repairs, having cash on hand can prevent you from having to put the bill on a credit card and paying interest on it for months. Ideally, you should save anywhere from three to six months’ worth of income.

• Invest Some of It

Put some money into investments such as the stock market, mutual funds, bonds, gold, and more. There are many choices, but consider the risk level first. Diversify the money into various markets, Investopedia advises, and you should also diversify according to different risk levels.

• Contribute to Your Retirement Account

While you have some money to do it, put more of your earned income into a retirement account, such as an IRA or 401(k)—a Roth account would be even better because it has no required minimum distributions (RMDs). Investopedia says you cannot put inherited money into a retirement account—but extra money can enable you to boost your retirement account with earnings if your contributions are not already maxed out. There are contribution limits to any retirement account, so you may want to make contributions over a several-year period.

If you have inherited a retirement account, such as an IRA or 401(k), you must empty it within 10 years. Merrill says that you will also need to take RMDs each year. Taxes will have to be paid on those withdrawals.

• Buy Real Estate

If you have been hoping to buy a house, you can use some of the inheritance money for it. Be careful about buying above your means because you will still be responsible for paying taxes, upkeep, insurance, and more on the house—as long as you live there.

When you receive inherited money, get expert help. They can show you ways to avoid taxes and keep more of it in your pocket, how to invest it, and possibly even how to pass it on with less taxes to the next generation.

The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.