What to Do When You Inherit Money: A Complete Guide (2026)
By Wealthvieu · Updated
Inheriting money can be life-changing—but it also comes with emotional and financial complexity. Making smart decisions during this time can secure your financial future; rushing into decisions can waste a once-in-a-lifetime opportunity.
Table of Contents
Step 1: Don’t Do Anything for 30-60 Days
Time Period
What to Do
Day 1-30
Grieve. Park money in a high-yield savings account. Don’t make any big purchases or investments.
Day 30-60
Gather all documents, understand what you’ve inherited, consult professionals if needed.
Day 60+
Begin executing a deliberate plan.
70% of families lose inherited wealth within one generation. The main reason: emotional and impulsive decisions.
Tax Rules for Different Inherited Assets
Asset Type
Federal Income Tax?
Key Tax Rule
Cash
No
No income tax on inheritance
Stocks/investments
No (until sold)
You get a “stepped-up basis” to the date-of-death value
Traditional IRA/401(k)
Yes (on withdrawals)
Non-spouse must withdraw within 10 years; spouse can transfer to own IRA
Roth IRA
Usually no
Non-spouse must withdraw within 10 years, but withdrawals are tax-free
Real estate
No (until sold)
Stepped-up basis—only gains after death are taxed
Life insurance
No (usually)
Tax-free unless paid to the estate
Annuities
Yes (on gains)
Earn portion is taxed as ordinary income
The Stepped-Up Basis (Key Tax Benefit)
Example
Inherited Stocks
Original purchase price (cost basis)
$50,000
Value at owner’s death (your new basis)
$300,000
You sell immediately
$0 taxable gain
You sell at $350,000
$50,000 taxable gain (not $300,000!)
The stepped-up basis eliminates tax on all gains during the deceased’s lifetime—potentially saving tens of thousands in capital gains taxes.
Inherited IRA Rules
Beneficiary Type
Rule
Spouse
Can roll into own IRA; RMDs based on own age
Non-spouse (after 2019)
Must withdraw all funds within 10 years
Eligible designated beneficiary*
Can use life expectancy method (stretch IRA)
Non-person (estate, charity)
Must withdraw within 5 years
*Eligible designated beneficiaries: minor children, disabled/chronically ill, persons not more than 10 years younger than deceased.
What to Do With an Inheritance by Size
Under $25,000
Priority
Action
1
Pay off high-interest debt (credit cards, personal loans)
2
Build emergency fund to 3 months of expenses
3
Contribute to IRA or increase 401(k) contributions
4
Invest remainder in low-cost index funds
$25,000-$100,000
Priority
Action
1
Park in high-yield savings for 60 days
2
Pay off all high-interest debt
3
Full 6-month emergency fund
4
Max out IRA ($7,000) and increase 401(k) contributions
Could overpay taxes by thousands (missing stepped-up basis, etc.)
Emotional investing (risky bets)
Concentrated positions or speculative investments
Ignoring inherited retirement account deadlines
Missing 10-year rule triggers penalties
Not updating your own estate plan
Your increased net worth needs new planning
The Bottom Line
Inherited money is a one-time opportunity. Wait 30-60 days before making decisions, understand the tax rules (especially stepped-up basis and the 10-year IRA rule), and follow a priority system: eliminate debt, build emergency savings, max tax-advantaged accounts, then invest the rest. For inheritances over $100,000, a fee-only financial advisor pays for themselves in tax savings and avoided mistakes.
