Inheritance Tips

Nearly $124 trillion in assets is set to change hands through 2048, according to estimates by the consulting firm Cerulli Associates.

Gen X, Millennials and Gen Z are expected to inherit ~$106 trillion of that amount.

But what do you do if you inherit something? Do you have to pay any taxes? What do you do?

It can be pretty complicated and overwhelming, so let me break down the most important parts:

Inheritance taxes

There is no federal inheritance tax in the U.S, meaning that if inherit anything (stocks, cash, a house, etc), YOU don’t pay any taxes on the inheritance. The deceased person’s estate may be responsible for estate taxes though.

Even though you, as the person receiving inheritance, don’t have to pay any federal tax, some states might tax your inheritance. As of 2026, only KY, MD, NE, NJ, and PA have an inheritance state tax on inherited assets. Some of these states don’t tax close relatives at all, others still do but at lower rates.

Managing an inheritance

On average, the inheritances are ~$46,200.

I will use that as a baseline to come up with some strategies that could be helpful for best managing it.

Step 1 – Take your time

As a general rule, putting your inheritance in a high-yield savings account or Treasury Bills is the first step.

Use this time to resolve any emotional or family issues. Take some time to process it. Don’t rush it.

The more you rush it = the more you make mistakes

Step 2 – Learn or get help

Depending on the amount, you have two options:

1. Get help from a competent CPA or financial planner. They can help you strategize about how to minimize potential taxes, recommend an investment strategy, or help you decide whether you need an estate planning attorney.

2. Get educated on how to manage it effectively (I can cover some of my thoughts here).

Of course, if the amount is $1M, you should likely go with option #1.

If the amount is $30,000, you probably can go with option #2.

This is because you are more likely to make more costly mistakes with option #1 vs #2.

Step 3 – Come up with your goals

What are your goals?

Depending on the inherited amount and your age (big difference between getting inheritance at 25 vs 55), it could be:

• Retiring
• Going back to school
• Changing jobs
• Building your own wealth
• Starting a business
• Buying a house

Figure out what is the most important for you. What do you want to accomplish?

Step 4 – Create a plan

You have to create a plan depending on your goals.

Let’s take a simple scenario of Jack, 30 years old, with a stable job and a mortgage. He received $50K of inheritance and wants to build wealth for the long term. Here are some general moves he could consider:

1. Out of $50K, put 3-6 months of expenses in an emergency fund if he doesn’t have one already.
2. Pay off high-interest debt (7-30%+)
3. Max out HSA (if Jack is qualified) for 2026.
4. Max out Roth IRA for 2026.
5. Fully max out 401(k) or 403(b) by putting more money from your paycheck (e.g increasing contribution amounts to 90% of your paycheck) and using inheritance $$$ to live off
6. Pay off medium-rate debt (4-7%) OR taxable brokerage account, depending on risk comfort.

If the inheritance amount is significant (like the $1M I mentioned), some other important topics emerge:

• Asset protection
• Gifting
• Estate planning
• Insurance

In that case, it’s best to find a professional to assist with planning.

In addition, some special rules apply with inheriting retirement accounts:

Inheriting a Traditional IRA

Rules for inherited IRAs depend on the beneficiary:

• Spouses

Spouses have the most flexibility. They can roll the IRA into their own account and treat it as if it were always theirs. That usually means longer tax deferral and more control over withdrawals.

• Nonspousal Inheritance

Nonspouse beneficiaries, such as children, have stricter rules:

Under the SECURE Act, most nonspouse beneficiaries must withdraw all assets from an inherited IRA within 10 years.

In addition, Required Minimum Distributions (RMDs) may apply depending on the original owner’s age/whether the original owner had already started RMDs.

Specifically, if the person who died was required to take withdrawals, the person who inherits must take annual withdrawals. Vanguard has an Inherited RMDs calculator to help with amounts.

Withdrawals from a traditional IRA are taxable, but there’s no 10% early withdrawal penalty.

If you must withdraw it within 10 years, it’s typically best to spread it out across 10 years, rather than withdrawing it all in one year.

This is because you can fill more of your lower tax brackets each year, rather than pulling it all in year 1 and paying higher marginal rates. However, if you are a high earner now, and will make significantly less in the future, some planning may be worthwile to minimize the tax liability.

Inheriting Roth IRA

Inheriting a Roth IRA follows similar rules to a Traditional IRA, with two distinct rules:

1. There are no required annual distributions (RMDs). However, Roth IRA distributions to a nonspouse must be completed within 10 years following the death of the account owner, similar to the Traditional IRA. Since the distributions will generally be non-taxable, you may as well wait out the 10 years to allow more time for the inherited Roth to generate tax-free gains.
2. Generally, withdrawals from an inherited Roth IRA are tax-free. However, for earnings to be tax-free, the original account owner must have held the Roth IRA for a minimum of 5 years. So, you need to know the first year the original owner made a Roth contribution.

Overall, I hope this newsletter was helpful. As always, do your research, speak to professionals, and use the money wisely.