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Top Tips for Investing Your Inheritance Money Wisely ✅ Thumbnail

Top Tips for Investing Your Inheritance Money Wisely ✅

Receiving an inheritance can open doors to financial growth and stability, placing you at a critical juncture where well-considered choices can profoundly impact your future. We understand that inheriting money comes with its emotional weight, often connected to the loss of a loved one. It's more than just an abrupt financial gain; it's a continuation of a legacy. That's why we recommend allowing yourself space to grieve and to recognize the significance of this transition before leaping into any major monetary decisions.

Undoubtedly, you’re faced with a maze of financial decisions accompanying your newfound wealth. There are many implications of your inheritance—including the consideration of inheritance taxes—and it's important to have a plan in place to guide you. We will cover critical choices such as paying off debts versus investing, the value of a high-yield savings account, and how to utilize inherited IRAs effectively. 

Updating Your Financial Plan After Receiving An Inheritance 

The first thing you should do when inheriting money is to reassess your goals and update your financial plan. The loss of a loved one and the ensuing inheritance has materially changed your life and your financial plan needs to reflect these changes. You can make choices that not only respect the legacy you've inherited but also sets a solid foundation for your financial future. Remember, we're here to help guide you through these decisions, ensuring that your inheritance money is a blessing that continues to give, whether that's through debt freedom or the growth of your wealth.

After reviewing your plan, you must understand the types of inheritable assets and their implications:

Types of Inherited Assets and Their Implications:

Real Estate:

Inheriting property like a house can be significant. You have options such as selling, renting, or living in it. Remember, selling inherited property may involve capital gains tax, but you may benefit from a step-up in basis, which could reduce or even eliminate the tax burden. (Can we insert an explanation about the step up in basis?)

Investments and Cash:

Securities and cash holdings come with their own tax considerations. It's crucial to understand the potential impact on your financial plan. Stocks with low-cost basis and large gains will receive the step up in basis allowing you to sell them tax free. In this way, you can reduce concentration risk in your portfolio and diversify in a manner to protect your wealth.

Retirement Accounts:

Inherited IRAs or 401(k)s are subject to specific rules. If you're a spouse, you have more flexibility with these accounts. You will want to consider rolling the inherited assets into your own IRA for more flexibility and control.

As a non-spouse, you will need to open an inherited IRA account. Keep in mind you will need to withdraw the funds within 10 years, which could lead to a significant tax bill. We will help you make strategic withdrawals over the next decade to minimize your tax burden.

In both cases, you can invest the proceeds as you wish, in accordance with your own financial plan and comfort level with risk. We encourage you to invest the money in a manner that is appropriate for you. Sometimes we see people who want to hang on to investments they inherited for sentimentality purposes. Investments give them a connection to the loved on they lost. This is a mistake and an example of where emotions can lead people to make bad financial decisions. The inherited money needs to be invested in you. Your loved one would want what’s best for you but unfortunately, we see people make poor decisions out of emotion sometimes.

Life Insurance Policies:

When you receive a life insurance payout it’s generally tax-free.  This can help to provide a financial cushion without the immediate tax implications. 

Collectibles and Family Businesses:

These unique assets may have both sentimental and financial value. Decisions around keeping, selling, or donating should be made with care, considering potential taxes and the continuation of the family legacy.

Understanding Inheritance Taxes:

Federal Estate Taxes:

The deceased's estate is responsible for this tax, with an exemption of $12.92 million per person in 2023. For 2024 the estate tax exemption is $13.61 million, a combined $27.22 million per couple.  

If your inheritance is under the estate tax exemption, no inheritance taxes will be owed. This is good news!

State-Level Taxes:

Some states impose their own estate or inheritance taxes. If you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, be aware of the varying exemptions and rates. Currently, California is one of 38 states that does not have an estate tax but there is talk that this will be changing.

Tax Exemptions and Rates:

Spouses are exempt from inheritance tax in all states with such taxes, while other relatives may face rates from 0% to 18%, depending on the state and their relationship to the deceased.Remember, inheriting money is more than a financial event—it's a responsibility. By understanding the implications and making informed decisions, you can honor the legacy left to you and build a secure financial future.

Paying Off Debt vs. Investing

When it comes to managing inheritance money, you're often faced with a critical decision: should you pay off debt, or is investing the wiser choice? We understand that this can be a complex decision, so let's break it down to ensure that every step you take is a stride towards financial empowerment.Paying Off High-Interest Debt: A Smart Move

Immediate Relief:

Tackling high-interest debts like credit card balances, personal loans, and student loans can provide immediate financial relief. The average credit card interest rate hovers around 16%, and by paying these off, you can save thousands of dollars in interest which is good. 

Long-Term Savings:

Using inheritance money to clear these debts is not just a short-term fix; it's a long-term saving strategy. Saving thousands of dollars in interest expense helps solidify your financial future.

What About Low Interest Debt?

In some cases, you may have debt that has a very low interest rate. An example would be a mortgage rate below 3%. In cases like this, you might be better off not paying the low interest debt off and putting your inheritance to work for you. With money markets paying 5%, you can use the interest from your savings account to pay off debt. Consider keeping any debt that has an interest rate below 5% with rates where they are today.

On the other hand, paying off debt might be more than a financial decision for you. It might create peace of mind that is irreplaceable. If this describes you, then paying off the debt might be a better choice. It’s a very personal decision. 

Build Up Your Emergency Fund

Make sure to build up your emergency fund. Utilize a high-yield savings account for a portion of your inheritance to earn more interest than a standard savings account while maintaining liquidity for short-term needs. We recommend having 3-6 months of living expenses in your emergency fund. With money market interest rates near 5% this is an effective vehicle to put your emergency fund into.

Investing for the Future: Growing Your Wealth

Assess and Align:

Before diving into investment opportunities, assess your entire financial portfolio and align your investments with your financial goals and risk tolerance. This strategic approach ensures that every dollar is purposefully placed to work for you. 

Maximize Retirement Contributions:

First, ensure you've maxed out contributions to retirement accounts. Then, consider a brokerage account to further diversify your portfolio, gaining access to a wide range of assets.

Diversification is Key:

Spread your investments across different asset classes and industries. This not only reduces risk but also positions you to potentially increase overall returns, with the stock market averaging 7-10% returns historically. We recommend using ETF’s because they are low cost and trade for free. This is a great way to protect your wealth and let it work for you.Maintaining Financial Health and Building Wealth

Maintaining your financial health and building wealth with inheritance money is a journey that requires strategic planning and foresight. Here are some pivotal steps to ensure you're managing your financial legacy responsibly and setting yourself up for a comfortable retirement:

Estate Planning Essentials:

Wills and Trusts:

Make sure you have a will in place. This ensures your assets are distributed according to your wishes. Trusts can provide additional control over how your assets are managed and distributed, offering both privacy and potential tax benefits. If you have a trust and recently lost a spouse, make sure to update it to ensure its accurate and aligned with your intentions.

Health Care Directives:

Advance directives and powers of attorney for health care are critical. These documents ensure that your medical preferences are honored, and a trusted person can make decisions if you're unable to do so. 

Beneficiary Updates:

Regularly review and update beneficiaries on all accounts to prevent any future legal complications and ensure your legacy is passed on as intended. If the loved one you lost was your primary beneficiary, make sure to update not only your primary beneficiary but also your contingent beneficiary on all retirement accounts.

By taking these steps, we ensure that your inheritance money is not just a windfall but a cornerstone for lasting financial health and wealth-building. Remember, inheriting money comes with both opportunities and responsibilities, and we're committed to helping you navigate this journey with confidence and strategic acumen.


Through this exploration of wise inheritance management, we've traversed the landscape of financial decision-making, from paying down debts to investing in a future that honors a legacy. The journey of inheritance is not just numbers in a ledger; it is an emotional testament that, when managed with care, continues to nurture your life's ambitions and the memory of those you cherish. Harnessing this wealth responsibly, you have the chance to establish a financial foundation that is secure and in homage to the gift you've received.

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.