Asking for a Friend - I think I am about to come into an inheritance that I didn’t expect so soon. What should I do?

June 10, 2024

Question:

I think I am about to come into an inheritance that I didn’t expect so soon. What should I do?

Answer:

One piece of common advice that I agree with is don’t do anything with the inheritance for six months. With rates on cash hovering at or above 5%, I would put it into a money market fund or even a short-term CD. The caveat to that advice is if you have any high interest credit card debt that needs to be paid down or paid off.

A recent article in the New York Times recommended taking 3-5% of the inheritance and donating to charity and using an additional 3-5% for something you really want. I’ll leave those two thoughts up to you.

If you are working, you could use the money to bolster your retirement savings. The good news is that you can put it into a taxable brokerage account and have a lot more flexibility in terms of tax treatment than in your 401(k) or IRA.

If you are close to retirement, you can use the money as a cash cushion until Social Security or pensions kick in. This would serve as a buffer especially if the equity markets decline in your first few years of retirement.

You could also start or add to an emergency fund.

Whatever you decide, I suggest you consult with a financial professional. If you have a financial planner, they are a fiduciary and must act in your best interest. You could also check in with your accountant to make sure there are no tax implications.

Also see: What Issues Should I Consider If I Experience a Sudden Wealth Event?


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