I Just Inherited Over $200K. Now What?
KEY POINTS
- Most Americans who get an inheritance receive less than $50,000.
- If you inherit $200,000, you won't be able to put all of that money in a retirement account immediately.
- Paying off high-interest debt and building an emergency fund are good priorities when you get an inheritance.
A $200,000 inheritance is not enough to quit working forever, but it can certainly be a game-changer. It's also substantially more than what a typical American inherits. Of families who receive an inheritance or financial gift, more than half receive less than $50,000.
Deciding what to do with your inheritance can be challenging. Whether you've inherited $200,000 or a different amount, here's what to do with your windfall.
Hold off on big decisions
Getting an inheritance can be fraught with emotion since you're often grieving the loss of a loved one. After you receive your money, try not to pressure yourself to make any big decisions right away.
Not sure where to stash your money in the meantime? Take a look at our picks for the best high-yield savings accounts. Many pay 4% APY or more, so you can earn interest on that money while you determine how best to use it.
Our Picks for the Best High-Yield Savings Accounts of 2024
| Product | APY | Min. to Earn | |
American Express® High Yield Savings
Member FDIC.
APY
3.80%
Rate info
3.80% annual percentage yield as of December 27, 2024. Terms apply.
Min. to earn
$0
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
3.80%
Rate info
3.80% annual percentage yield as of December 27, 2024. Terms apply.
|
$0
|
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
Capital One 360 Performance Savings
Member FDIC.
APY
3.80%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
3.80%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.
|
$0
|
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
Western Alliance Bank High-Yield Savings Premier
Member FDIC.
APY
4.46%
Rate info
The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
Min. to earn
$500 to open, $0.01 for max APY
Open Account for Western Alliance Bank High-Yield Savings Premier
On Western Alliance Bank's Secure Website. |
4.46%
Rate info
The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
|
$500 to open, $0.01 for max APY
|
Open Account for Western Alliance Bank High-Yield Savings Premier
On Western Alliance Bank's Secure Website. |
Take stock of your finances
After you've had some time to think, take a look at your finances. You'll want to review the following:
- Debts: Tally up how much debt you have, including credit cards and personal loans, car loans, mortgages, and student loans, along with the interest rate you're paying on each.
- Investments: This includes money in retirement accounts, like 401(k)s and IRAs, as well as other investments, like stocks you own in a taxable brokerage account.
- Savings: Finally, add up how much savings you have in your bank accounts that you could use for an emergency or your short- to medium-term needs.
Consider enlisting the help of a fee-only financial advisor to help you assess your situation and make a plan for your inheritance.
Build an emergency fund and pay off debt
Using your inheritance to buy financial security is a huge gift to yourself. If you don't have at least six months' worth of expenses in an emergency fund, using your inheritance to build a safety net is a wise move.
If you have high-interest debt, like credit cards or some private student loans, think about paying it off. But you may want to keep lower-interest debt, like a mortgage you obtained in 2020 or 2021 when rates were near-zero, unless getting rid of your housing payment is important to you.
Invest for your future
Once your emergency fund is in shape and you've paid off costly debt, consider investing at least some of that $200,000. Keep in mind, though, that retirement accounts have annual contribution limits. In 2024, you can only contribute up to $23,000 in a 401(k) or 403(b) account (or $30,500 if you're 50 or older). If you open an IRA, you'll be limited to $7,000 (or $8,000 if you're at least 50).
You could also invest in a 529 plan for your children or grandchildren, max out your health savings account (HSA), or invest using a taxable brokerage account. Or you could set money aside and use it to fund your retirement accounts in future years.
Don't forget about the taxes
You typically don't owe federal taxes on an inheritance, though a half-dozen states have a state inheritance tax. However, if you inherit assets like a home or stocks that you then sell, you'll be on the hook for capital gains taxes. Or if you inherited an IRA or another retirement account, you'll need to plan to pay income taxes on your withdrawals in most cases.
If you've inherited assets you plan to sell or you're the beneficiary of a retirement account, be sure to discuss the tax implications with a CPA or tax attorney.
Do something that makes you happy
Receiving an inheritance can help you secure your long-term financial future, but there's nothing wrong with spending some of that money on something that would make you happier right now. So give yourself permission to put aside some of that money for something you'd enjoy. It could be your bucket-list vacation, a kitchen remodel, a new guitar, a piece of art, or a gift to your favorite charity -- whatever makes you happy.
Your loved one likely left you that inheritance in hopes of making your life better. Spending it thoughtfully is a great way to honor their wishes.
Our Research Expert
Robin Hartill, CFP®, is Motley Fool Money’s Head of Product Ratings and has worked for The Motley Fool since 2020. Her work has appeared in various national publications, including NerdWallet and CNET Money. She previously wrote The Penny Hoarder’s syndicated “Dear Penny” personal finance advice column. She is based in St. Petersburg, Florida.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.