What to Do With a $100,000 Inheritance
Just inherited $100k? Here's a clear plan to protect and grow this money wisely.
Key Takeaways
- 1Don't make any major financial decisions for at least 30 days.
- 2Inheritances are generally not taxable income, but investment gains are.
- 3Build an emergency fund first before investing any inheritance.
- 4Pay off high-interest debt (credit cards) before investing.
- 5Consider allocating 10-20% to a Gold IRA for protection.
- 6Consult a fee-only financial advisor for personalized guidance.
- 7Don't tell everyone about your inheritance - it attracts problems.
First Steps: Don't Rush
The most important thing you can do with a $100k inheritance is **nothing**. At least for 30 days. Grief, excitement, and pressure from others can lead to terrible decisions. Park the money somewhere safe while you think.
- Put the money in a high-yield savings account temporarily
- Don't tell extended family or friends about the amount
- Ignore anyone trying to sell you something
- Take time to grieve and process
- Make a plan before taking action
Tax Implications of Inheritance
Good news: In most cases, an inheritance is **not taxable income**. However, there are nuances:
- **Inherited IRA:** Must take distributions within 10 years (SECURE Act)
- **Stepped-up basis:** You only pay capital gains on appreciation AFTER inheritance
- **Interest/dividends:** Any earnings after you receive the money ARE taxable
| Type | Tax Treatment |
|---|---|
| Cash inheritance | Generally not taxable |
| Inherited IRA/401k | Distributions are taxable |
| Inherited stocks/funds | Get "stepped-up" basis at death |
| Inherited real estate | Get stepped-up basis; sell tax-free if no gain |
| Estate tax | Only if estate > $13.61M (2024) |
Suggested $100k Allocation Strategy
Here's a balanced approach for someone nearing or in retirement:
- This is a starting point - adjust for your situation
- If you have no emergency fund, that's priority #1
- If you carry credit card debt, pay it off first
- The Gold IRA portion protects against what you can't predict
| Category | Amount | Purpose |
|---|---|---|
| Emergency fund | $15,000-20,000 | 6 months expenses in savings |
| Pay off debt | Variable | Eliminate high-interest credit cards |
| Gold IRA | $15,000-20,000 | Inflation/crash protection |
| Traditional investments | $40,000-50,000 | Diversified stock/bond funds |
| Enjoyment fund | $5,000-10,000 | Something meaningful |
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Why Emergency Fund Comes First
Before investing a dime, make sure you have 6 months of expenses in accessible savings.
- Job loss, medical emergencies, car repairs happen
- Without emergency fund, you'll be forced to sell investments at bad times
- High-yield savings accounts pay 4-5% in 2024
- This is boring but crucial
- Emergency fund = insurance against forced selling
Investment Options for the Rest
Once emergency fund and debt are handled, here's where to put the rest:
- **Gold IRA (15-20%):** Protection against inflation and market crashes
- **Index funds (40-50%):** Low-cost exposure to stock market growth
- **Bond funds (20-30%):** Stability and income
- **I-Bonds:** Up to $10k/year in inflation-protected savings bonds
- **Real estate (optional):** REITs for diversification without landlord hassles
Don't Tell Everyone About Your Inheritance
This attracts relatives asking for "loans," scammers, and salespeople. Keep the amount private. You don't owe anyone an explanation of what you do with inherited money.
Protect Your Inheritance With Physical Gold
You didn't work for this money - someone you loved did. Honor their legacy by protecting a portion from market volatility.
- Allocate $15,000-20,000 to a Gold IRA for protection
- Physical gold holds value when markets crash
- No one else's decisions can destroy this portion
- Same tax advantages as traditional IRA
- Protection against the unexpected
Frequently Asked Questions
1Do I have to pay taxes on a $100k inheritance?
Generally no. Direct inheritances are not taxable income. However, if you inherit an IRA or 401k, distributions from those accounts are taxable. Interest or gains earned after you receive the inheritance are also taxable.
2Should I pay off my mortgage with inheritance money?
It depends on your interest rate. If your mortgage is under 4%, you may earn more investing the money. If it's over 6%, paying it off provides a guaranteed "return." Consider your peace of mind too - some people sleep better without a mortgage.
3Should I give some inheritance to my children now?
Consider your own security first. You can gift up to $18,000 per person per year without gift tax implications. But don't give away money you might need - you can't ask for it back.
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