When you inherit money, the best first move is usually to do very little. Put cash somewhere safe and easy to reach, leave inherited investments and IRAs where they are, and take a few weeks before deciding anything. Most inheritances owe no federal tax: the estate tax applies only to estates over $15 million for deaths in 2026. The costly mistakes come later, from cashing out an inherited IRA too fast or selling the wrong thing first. A one-time plan from a fee-only planner costs a median $2,000 and is often all you need.
The first 90 days
- Give yourself time. Grief and big money decisions don’t mix well. Few inheritance decisions have to be made in the first month.
- Park the cash. A high-yield savings account, money market fund or Treasury bills, in your own name. Hold off on paying off debt or buying anything large.
- Don’t touch the inherited IRA or 401(k). Cashing out a traditional account makes the whole balance taxable income in one year.
- Gather the paperwork. Statements for every account, the will or trust, the death certificate, the last tax returns, and any letters from the executor or the custodian.
- Decide whether you want all of it. If you’d rather the money pass to the next person in line, such as your children, you can refuse it with a formal disclaimer. It must be in writing within 9 months, and before you’ve accepted any of it.
How each kind of inheritance is taxed
| What you inherited | How it’s taxed | What to watch |
|---|---|---|
| Cash | Not income to you | Nothing, beyond where to keep it |
| Stocks, funds or property in a taxable account | Your cost basis resets to the value on the date of death | Selling soon after usually means little or no capital gains tax |
| A traditional IRA or 401(k) | Withdrawals are taxed as ordinary income | The 10-year rule, and how you spread withdrawals across years |
| A Roth IRA | Withdrawals are usually tax-free | It generally still has to be emptied on a schedule |
| A house | Basis resets to the value at death | Upkeep, property tax and whether to keep, rent or sell |
| Life insurance | Usually not taxable income | It’s often the money you can use first |
The reset in cost basis is the rule most people don’t know. If your parent bought stock for $20,000 and it was worth $200,000 when they died, your basis is generally $200,000. Sell it soon after for that amount and there’s little or no gain to tax. That often makes it the right time to diversify an inherited stock you’d never have chosen yourself.
State taxes. Five states charge an inheritance tax on heirs: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Close relatives usually get lower rates or larger exemptions, and the tax is owed to the state where the person who died lived, wherever you live. Twelve states and the District of Columbia also have their own estate tax, paid by the estate.
The inherited IRA rules
Inherited retirement accounts are where most of the money is lost, because the rules are strict and the tax is large.
- A spouse can usually treat the IRA as their own, or roll it into their own IRA.
- Most other beneficiaries must empty the account by the end of the 10th year after the year of death. If the owner had already started required withdrawals, you generally must take some every year along the way as well.
- Some beneficiaries get more time, including a minor child of the owner, a disabled or chronically ill person, and anyone not more than 10 years younger than the owner.
A planner’s job here is timing. Spreading withdrawals across lower-income years, such as before you start Social Security or after you retire, can cut the total tax a lot compared with taking everything in year one or year ten.
What a planner does with an inheritance
- Maps everything you received and how each piece is taxed.
- Plans the inherited IRA withdrawals year by year against your own income.
- Decides what to sell, using the reset basis to diversify cheaply.
- Fits it into your own plan: paying down debt, retiring earlier, helping children, giving to charity.
- Updates your own estate plan, since your net worth has changed. That’s where estate planning and tax planning specialists come in.
Large or family-business inheritances often involve trusts, family meetings and gifts to the next generation. Advisors who specialize in family wealth transfer handle that longer handoff. Browse family wealth transfer specialists and advisors for multi-generational families in the public graph.
What it costs
| If you want | Option | Typical cost (US median) |
|---|---|---|
| Answers on the IRA rules and what to sell | Hourly | $300 an hour |
| A full plan for the inheritance | One-time plan | $2,000 |
| Ongoing help, including investing it | Ongoing planning fee or percentage of assets | $4,500 a year, or 1% of assets |
At 1%, a $1 million inheritance costs $10,000 a year to manage. That can be worth it if you want someone to run the money for good. If what you need is a plan you’ll carry out yourself, a one-time plan costs a fraction of that. See what a one-time plan costs and what an advisor costs on $1 million.
Be careful who you call
An inheritance makes you a target for sales pitches, sometimes from the advisor who worked with the person who died. You don’t have to keep their advisor. A fee-only planner is paid only by you, so their advice on what to keep, sell or buy isn’t tied to a commission. Check any advisor on the SEC’s adviser search before you move money, and see how to switch advisors if you inherit accounts at a firm you don’t want to stay with.
Questions to ask
- How many clients have you helped with an inherited IRA in the past year?
- What would you do in the first 90 days, and what would you leave alone?
- Will you plan my withdrawals year by year against my own taxes?
- Do you work with my estate attorney and tax preparer?
- Do you or your firm earn anything other than what I pay you?