What to Do With an Inheritance: Plan Before You Act

After receiving an inheritance, it may help to pause before making large decisions. Confirm what you actually received, how it may be taxed, and what deadlines apply. Then review it against your broader financial plan, with your advisor, CPA and attorney, so choices about debt, savings, investing or spending fit your goals.

This article is educational. It is not a recommendation to use inherited money in any particular way. It is a list of questions to work through so that the first decisions you make are informed ones.

What should you do first after receiving an inheritance?

There is rarely a deadline that requires a decision in the first few days, with some exceptions noted below. Many people find it useful to slow down and work through a short sequence:

1. Take time to grieve and avoid rushing. An inheritance usually follows a loss. Large decisions made under emotional pressure can be difficult to undo.
2. Confirm what you are receiving. Ask the estate's executor or attorney for a written list of the assets that will pass to you, such as cash, investment accounts, real estate, retirement accounts or personal property, and when each is expected to be transferred.
3. Identify any deadlines. Inherited retirement accounts, in particular, can carry distribution deadlines that depend on who you are and when the owner died.
4. Hold the money somewhere simple while you plan. Many people keep new funds in an easy-to-access account in the interim, so that nothing is committed before a plan is in place. Ask your advisor what may fit your situation.
5. Gather your professionals. Your advisor, CPA and estate attorney each see a different part of the picture. Bringing them into the conversation early may help avoid surprises.
6. Review your overall financial plan before committing the money. This is the step that tends to get skipped, and it is the subject of the rest of this article.

Is an inheritance taxable?

Often, the inheritance itself is not federal taxable income to the person who receives it, but there are important exceptions. According to the IRS, in most cases property you receive as a gift, bequest or inheritance is not included in your income. However, income that inherited property produces later, such as interest, dividends or rent, is generally taxable to you.

A few points are worth raising with your CPA:

• Estate and state taxes. If any federal estate tax applies, it is generally handled by the estate before assets are distributed. Some states have their own estate or inheritance taxes, and the rules vary, so ask the estate's attorney what applies.
• Selling inherited property. The IRS explains that the basis of inherited property is generally its fair market value on the date of death, or an alternate valuation date in some cases. If you later sell for more than that basis, you may have a taxable gain. See also Publication 551, Basis of Assets.
• Inherited retirement accounts. The IRS notes that if you inherited a pension or an IRA, you may have to include part of the inherited amount in your income.

How can the type of asset change the decision?

Two inheritances of the same size can lead to very different next steps. The list below is a general overview, not tax advice. Your CPA can confirm how these rules apply to you.

• Cash: The cash itself is generally not income to you, but interest it earns afterward may be.
• Investments held outside a retirement account: The cost basis may be reset to the value at the date of death, which can affect gains if you sell. Your CPA can confirm the basis.
• Real estate: Basis, carrying costs, insurance, property taxes and whether to keep, rent or sell are all separate questions that may call for their own analysis.
• Traditional retirement account: Withdrawals are generally taxable as ordinary income. Many beneficiaries who are not a surviving spouse must empty the account by the end of the 10th year after the owner's death, and annual withdrawals may also be required in some cases.
• Roth retirement account: Withdrawals may be tax-free if the applicable requirements are met, but distribution deadlines can still apply.

The IRS explains the inherited IRA deadlines, including the 10-year rule and the different treatment of spouses and other eligible beneficiaries, in Publication 590-B. Because the rules depend on who the beneficiary is and the owner's age at death, it is worth confirming your deadline before taking any distribution.

Why does a financial plan matter before you decide?

An inheritance can change your options, but it does not change the need to look at the whole picture. A plan helps you see how one decision may affect the others, and it may reveal trade-offs that are not obvious when you look at the money on its own.

Questions a plan may help you answer include:

• Cash flow and reserves. Do you have an adequate cushion for emergencies and near-term expenses? Would new funds change that?
• Debt. Which debts do you carry, and how do their interest rates, terms and tax treatment compare with other uses of the money?
• Retirement. How does this money fit with your retirement timeline and income needs? Could it affect the timing of other decisions, such as when to retire or claim Social Security?
• Taxes. Could inherited income, a retirement account distribution or the sale of an asset push you into a higher tax bracket, or affect income-based items such as Medicare premiums?
• Investments and risk. If you invest, how does that money fit your existing risk tolerance and time horizon? Investing involves risk, including the potential loss of principal.
• Family and education goals. Do you have goals for children, grandchildren or other family members that the money could support?
• Insurance. Do your coverage levels still fit, particularly if you are keeping inherited property?
• Your own estate plan. An inheritance may change what you eventually leave to others. Beneficiary designations, wills and other documents may be worth reviewing with your attorney.

Which inheritance decisions are hardest to undo?

Some choices can be changed later and some cannot. It may be worth taking extra time on decisions like these:

• Cashing out an inherited retirement account. A large withdrawal can add to your income for the year, and the tax cost may not be reversible.
• Selling inherited property quickly. Without knowing the basis and the carrying costs, it can be hard to compare selling with holding.
• Making large gifts or loans to family or friends. Once money is given, it is difficult to take back, and it may affect your own plan.
• Making large purchases or commitments. Major spending can be hard to reverse and may change your long-term cash flow.
• Combining inherited money with joint accounts or business accounts. Depending on your circumstances, this may create questions about how the funds are treated later. Ask your attorney whether it matters for you.

None of this means that spending, gifting or paying off a debt is the wrong choice. It means these are decisions that tend to benefit from a plan first.

How can your advisor, CPA and attorney work together?

Each professional covers a different piece. Your CPA looks at the tax effects. Your attorney can explain how the estate is being settled and can update your own legal documents. Your advisor looks at how the money fits your overall financial plan.

At FIRST Financial Group, we coordinate with your CPA and attorney so your personal plan and your business plan point in the same direction. We do not draft wills or trusts. For business owners, an inheritance can also touch business cash flow, ownership or succession plans, which is one more reason to look at the full picture together.

Before a first planning conversation, it can help to gather:

• The letter or documents from the executor or estate attorney listing the assets you will receive
• Account statements for any inherited investment or retirement accounts
• Information on any real estate, including recent valuations if available
• Your most recent tax return
• A list of your current debts, savings and insurance coverage
• Your goals for the next one to five years

Frequently asked questions

What is the best thing to do with an inheritance?

There is no single best answer, because it depends on your debts, savings, goals, taxes and the type of assets you receive. Many people find it helpful to confirm what they are receiving, hold the funds in a simple place for a time, and review the decision against a financial plan before committing the money.

Do I have to pay tax on money I inherit?

Generally, the inheritance itself is not included in your federal income, according to the IRS. Income that inherited property earns afterward, gains on a later sale, and withdrawals from an inherited traditional retirement account may be taxable. State rules can differ, so confirm with your CPA.

Should I invest, pay off debt or save an inheritance?

That depends on your individual circumstances, so this article does not recommend any one approach. Your interest rates, emergency reserves, retirement timeline, tax situation and risk tolerance all matter. A financial plan can help you compare the options side by side before you decide.

How long do I have to withdraw from an inherited IRA?

It depends on your relationship to the owner and when the owner died. Many beneficiaries who are not a surviving spouse or another eligible beneficiary must withdraw the full balance by December 31 of the 10th year after the owner's death. Annual withdrawals may also be required in some cases. See IRS Publication 590-B and ask your CPA how it applies to you.

Should I work with an advisor after receiving an inheritance?

Many people choose to, particularly when the inheritance is large relative to their other assets, includes retirement accounts or real estate, or arrives at a time of other life changes. An advisor can help you review the decision as part of your whole financial plan and coordinate with your CPA and attorney.

Next steps

If you have received an inheritance, or expect to, you can book time with our team to talk through your situation before you make decisions. To learn more about how we approach these questions, visit our Financial Planning, Retirement Planning and Tax Planning pages, or read our estate planning guidance. You may also find our Year-End Financial Planning Checklist for Families useful as you review your finances before December 31.

This article is for general educational purposes only and is not legal, tax or investment advice, and it is not a recommendation to take or avoid any particular action with inherited assets. Outcomes depend on individual circumstances, and the decisions discussed here may involve trade-offs. Tax rules, estate rules and deadlines change and vary by state, so please consult your own tax and legal professionals before acting. Information from the IRS was reviewed as of November 10, 2026.