What To Do When You Just Received a Large Inheritance
Most people spend more time thinking about getting an inheritance than what to actually do with one. Then it arrives, usually during one of the hardest seasons of their life, and the financial decisions pile on top of the grief before they've had a chance to breathe.
Here's the most important thing to understand before anything else: the inheritance is not your financial plan. It's an addition to your financial plan. That single mindset shift changes how you treat the money, and it's the difference between an inheritance that builds long-term security and one that's gone within a year. According to arecent study, 42% of heirs spend their entire inheritance within 12 months.
This matters more than ever right now.Cerulli Associates projects that $124 trillion in wealth will transfer between generations by 2048, making this the largest intergenerational wealth transfer in history. Millions of families are navigating exactly what you're navigating.
Stop. Don't Do Anything Yet.
There's no rule that says you have to make financial decisions the week you receive an inheritance. Park the money somewhere safe, a high-yield savings account or a money market account, and give yourself 30 to 90 days before making any major moves. Decisions made in grief or shock tend to be ones people regret. The money will still be there in three months.
What You Actually Received and How It's Taxed
Inheritances come in different forms, and how they're taxed depends almost entirely on what you received and how it was structured.
Cash is the simplest. Inherited cash is generally not subject to federal income tax. You won't owe income tax just for receiving it. If it came from a large estate, an estate tax may have already been applied before it reached you. As of 2025, the federal estate tax exemption sits at $13.61 million per individual, so most estates won't trigger this.
Inherited retirement accounts are a different story. If you inherited a traditional IRA or 401k, every dollar you withdraw is taxed as ordinary income. Under the SECURE Act 2.0, most non-spouse beneficiaries are required to fully distribute the account within 10 years. How you time those withdrawals matters, pulling too much in a high-income year could push you into a higher tax bracket unnecessarily.
Inherited brokerage accounts and investments benefit from what's called a stepped-up cost basis. The cost basis resets to the fair market value on the date of the original owner's death. So if your parent bought a stock for $20,000 that was worth $80,000 when they passed, your basis is $80,000, not $20,000. Sell it immediately and you may owe little to nothing in capital gains taxes.
Real estate works similarly with the stepped-up basis, but comes with additional considerations around property taxes, carrying costs, and whether you want to sell, rent, or move in.
Fit It Into Your Actual Financial Plan
This is where the inheritance becomes a tool rather than a windfall. Start with the basics before you think about investing a dollar of it.
Do you have three to six months of expenses in an emergency fund? If not, that's where a portion of this goes first.
High-interest debt, credit cards, personal loans? Paying those off is a guaranteed return equal to whatever interest rate you were paying. No investment reliably beats 20% annually.
Are you maxing out retirement accounts? A $7,000 Roth IRA contribution (or $8,000 if you're 50 or older in 2025) is often a better move than putting the same dollars into a taxable brokerage account, depending on your income.
After the basics are covered, then you think about longer-term investing, whether that's a brokerage account, real estate, or something else entirely.
The Part Nobody Talks About
Receiving an inheritance rarely happens during a good time. Most people receive one because someone they loved died. The combination of grief and sudden financial pressure is a lot, and it leads to decisions that are more emotional than rational.
This is why many people either freeze completely and let the money sit untouched for years, or do the opposite and spend it fast as a way of processing the loss. Neither tends to serve them well.
If you're in that window right now, you don't need to figure it all out immediately. Give yourself permission to wait.
When To Get Professional Help
If the inheritance is large enough to meaningfully change your financial picture, talk to a fee-only financial advisor before making any significant moves. Especially if inherited retirement accounts are involved.
If you are new here, welcome! My name is Trey Cochran.
I am the founder of Cochran Wealth Management, a financial planning firm dedicated to helping individuals and families age 45 and older navigate the transition into and through retirement
This article is part of a personal challenge I've taken on this summer: writing and publishing one blog post every day for 100 consecutive days. My goal is to provide practical insights, educational content, and retirement planning perspectives that can help you make more informed financial decisions.
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Day 3 of 100
