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Inheriting money can be a bittersweet experience. 

While it brings financial opportunities, it also comes with important decisions that can feel overwhelming—especially when emotions are involved. 

And without a plan, it’s easy to make mistakes. In fact, one in three Americans who receive an inheritance spend it all within two years.¹

Whether your goal is to preserve and grow the inheritance, put it to immediate use or ensure it aligns with your long-term financial plan, taking the RIGHT STEPS early can make all the difference.

So, if you’re asking yourself: What should I do with this inherited money? 

Take these seven steps:

Step 1—Pause Before Making Big Decisions

Inheriting money often follows the passing of a loved one, making it an emotional experience. 

The money can feel like a tangible reminder of their absence, which may bring comfort or intensify feelings of grief.

Overall, it’s important to take time to process your feelings before making any big financial moves.

By slowing down, you’ll be more likely to AVOID COMMON PITFALLS, like spending impulsively, quitting a job prematurely, acting on unsolicited (and unqualified) advice or neglecting tax planning. 

Step 2—Know Your Inheritance’s Role in Your Financial Plan

Without clear financial and retirement plans, it’s easy to make quick financial choices that may NOT benefit you in the long run.

Sometimes an inheritance can shift your financial picture significantly. 

Failing to adjust your savings, retirement plan or estate strategy can mean missed opportunities to optimize your wealth.

But, here’s the thing…

It’s unlikely you’ll be able to optimize your wealth without knowing what your PIN is. Which brings us to the next step.

Step 3—Determine Your PIN

What’s a PIN?

Every retirement planning action and decision revolves around your Portfolio Income Needs, aka PIN. 

Think of retirement planning like a road trip. Would you start driving without knowing your destination? 

Of course not.

Your PIN is the destination—it tells you HOW MUCH INCOME you’ll need from your investments to fund the retirement you want. 

Use our Portfolio Income Needs calculator to determine your initial PIN.

After using the calculator, you can receive a free, personalized video from a Rubino & Liang advisor outlining steps to improve your retirement readiness. Your video is confidential and will be delivered to your email within 3-4 business days.

Once you have your PIN, you can plan the RIGHT PATH forward and improve your retirement outlook using one of three approaches: Shortfall, Strengthen or Sharpen.

[Resource] If you’re concerned about a retirement shortfall, you’re not alone. Take these 4 actions to overcome retirement income shortfalls.

Step 4—Understand What You Inherited and the Tax Implications

Inheritances come in many forms, including:

• Business Ownership
• Cash and Investments
• Life Insurance Proceeds
• Real Estate
• Retirement Accounts (401(k), IRA)

Tax Implications to Consider

The type of asset you inherit can significantly impact your tax situation. Here’s a breakdown of common tax considerations:

Estate Taxes: 

The federal estate tax applies only to estates valued above $13.9 million. 

However, some states have their own estate taxes with much lower thresholds. In Massachusetts, for example, estates worth more than $2 million may be subject to state estate tax. 

Also, there are six states that have an inheritance tax (heirs pay the taxes), including Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Capital Gains Taxes: 

Inherited assets (e.g., stocks, real estate or business interests) typically receive a step-up in cost basis to their fair market value at the time of the original owner’s death. This can reduce or eliminate capital gains tax if you SELL THE ASSET SOON AFTER INHERITING IT. But, if you wait to sell, you may owe capital gains tax.

Here’s a simple example:

Let’s say you inherit your mother’s house that she originally bought for $100,000. However, it’s now worth $300,000. 

Thanks to the step-up in cost basis, the IRS treats your purchase price as $300,000. Therefore, if you sell immediately for that amount, generally there’s no capital gains tax since there’s no profit. 

However, if you wait and sell later for $400,000, you’ll likely owe capital gains tax on the $100,000 increase after inheritance.

Finally, if you decide to keep the property, you’ll likely pay property taxes too.

Retirement Accounts (401(k), IRA): 

Inherited retirement accounts have SPECIAL RULES. In most cases, inherited traditional IRAs and 401(k)s are subject to income tax when distributions are taken. Roth IRAs can typically be withdrawn tax-free.

HOWEVER, for most non-spouse beneficiaries, the full balance of an inherited retirement account must be distributed within 10 years, thanks to the SECURE Act.

Here are two detailed resources to walk you through the distribution process:

-How Must I Take Distributions From The Traditional IRA I Inherited?

-How Must I Take Distributions From The Roth IRA I Inherited?

Life Insurance Proceeds: 

Generally, life insurance payouts are not subject to income tax. However, if the policy was part of a taxable estate, estate taxes could apply if the total estate value exceeds federal or state limits.

Business Ownership: 

Inheriting a business can present complex tax challenges, including estate tax obligations, valuation issues and tax implications if the business is sold. Also, if you continue operating the business, it’s essential to understand ongoing tax obligations, including corporate, payroll and income taxes.

Step 5—Rebalance Your Investment Portfolio

Large inheritances can disrupt your asset diversification, leaving you too heavily invested in certain areas. 

To keep your risk level in check, it’s ESSENTIAL to review your investment portfolio and adjust your allocations as needed. 

Here are just two examples:

#1—If you inherit a substantial amount of stock from a single company—perhaps shares passed down from a family business or a longtime investment—you may find yourself overly concentrated in that one stock. Without rebalancing, your portfolio could be exposed to unnecessary risk if that company underperforms.

#2—If you inherit a large amount of real estate, your portfolio may become too concentrated in property. While valuable, real estate is illiquid and can limit flexibility—especially when planning for retirement. 

Rebalancing into stocks, bonds or other investments can provide more diversification, liquidity and long-term growth potential to support both your retirement and overall investment strategy.

Step 6—Update Your Beneficiaries and Estate Plan

No matter the size of your inheritance, it’s important to review the beneficiaries on your insurance policies and both existing and newly inherited financial accounts.

You may also need to revise your will or trust to specify how these new assets should be distributed, preventing confusion among YOUR HEIRS.

Remember, certain inherited assets—such as real estate, business ownership or investment accounts—may have estate or capital gains tax considerations.

Updating your estate plan can help minimize tax burdens for your heirs.

Finally, if you inherit a business or real estate shared with other heirs, updating legal agreements or estate documents can clarify ownership, responsibilities and succession planning.

Candidly, some of this decision-making can be complex and overwhelming. 

Which leads us to our last step.

Step 7—Get Professional Guidance

Receiving an inheritance comes with opportunity and complexity. 

Add in—managing investments, taxes and retirement planning—and it can be daunting.

A financial advisor can help you make sense of your options, so you can CONFIDENTLY DECIDE how to use your inheritance to support your goals.

If you’re feeling uncertain about all the financial choices and decisions, then learn more about our 365 Retirement Plan Process.

It’s easy and reduces stress.

[Related Resource] When over 250 recent retirees were asked about their BIGGEST FINANCIAL SURPRISE, the top answer was taxes. Get ahead of the surprise by reading: How A Tax Planning Strategy Today Could Help Maximize Income In Retirement.)

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1: https://www.marketwatch.com/story/one-in-three-americans-who-get-an-inheritance-blow-it-2015-09-03