Baby boomers are set to transfer roughly $124 trillion in wealth to the next generation by 2048, a phenomenon known as the great wealth transfer. With women now taking a larger role in managing their family’s finances, many will likely find themselves on the receiving end of this transfer and faced with a difficult question: What should I do with my inheritance money?
For women across America, this inheritance money will represent a rare opportunity to position themselves (and any family) for financial success. However, it’ll also raise lots of questions. This guide breaks down the most common first steps you can take after receiving an inheritance.
Looking for a financial advisor who can help you figure out what to do with inheritance money?
Contact the team at ARQ Wealth to build a plan tailored to your inheritance and your goals. Call us at (480) 214-9572 to schedule a free consultation.
You Just Received an Inheritance. What Now?
One of the most recommended first steps is counterintuitive: do nothing. Just take a moment – likely a few days or weeks – to reflect on the situation.
An inheritance signals the transfer of assets from someone who’s passed away to their chosen friends or family members, known as beneficiaries. Commonly inherited assets include:
- Cash: Physical cash, checking or savings accounts, and cash equivalents like Certificates of Deposit
- Investment accounts: Stock portfolios, bonds, mutual funds, or retirement plans like IRAs, 401(k)s
- Real estate holdings: Primary residences, family homes, rental properties, or even commercial buildings
- Valuable property: Cars, expensive jewelry, art, collectibles, or other items of value
These items will be distributed according to the deceased’s will or trust. The process is typically an emotionally turbulent time. Family dynamics are restructured, family heirlooms are passed on, and emotions can be charged.
If you’re accustomed to putting others first, it can be tempting to focus on how other people want you to spend the inheritance. Or, your initial reaction might be to focus on how the money could help your children, partner, or extended family. While supporting loved ones is important, so is creating a stable financial foundation for yourself.
Once you’ve taken a moment, here are some common starting points to consider.
What to Do With an Inheritance: 5 Common First Steps
There’s no one-size-fits-all plan for inheritance money, but there are several recommended starting points.
1.) Thinking About Your Long-Term Goals
Receiving inheritance money gives you the opportunity to make a major life change. Before making any decisions, it’s helpful to think deeply about what your long-term life goals are and how this money can help you reach them. This is especially important for women who might find themselves facing their first major financial opportunity and may not be used to making these decisions:
- Buying a home, apartment, or rental property: The inheritance could act as a down payment on a new home, apartment, or rental property to start generating passive income.
- Pursuing higher education: An inheritance could offer the opportunity to reenter the workforce after a caregiving break by helping you obtain an expensive certification or diploma.
- Funding a major lifestyle change: It could give you the ability to move cities, pursue different passions, or launch a business venture that you may have been holding off on.
- Creating a clean financial slate: The inheritance money could be used to pay off student loans, credit card debt, an existing mortgage, a car loan, or other forms of debt to help eliminate any existing obligations.
- Securing financial security: The money could establish financial security for you, your family, and any children.
Regardless of your financial goals, there are several financial decisions you can make that almost always set you on a path for success.
2.) Pay Down High-Interest Debt
Using your inheritance money to pay down credit card debt or other forms of high-interest debt is a very responsible way to use the money. While this may not feel as exciting as making a large purchase or investing the money, it’s still a significant investment in your future.
In many cases, your inheritance money can give you the ability to reset your financial balance and start fresh. If you’re already debt-free, another common starting point is to contribute to your emergency fund.
3.) Build or Pad Your Emergency Fund
As a general rule, it’s recommended to have enough cash stored away to fund between three and six months of expenses. This way, if there’s an emergency, you have cash that you can access without needing to borrow.
If you’ve gotten in the habit of sharing expenses with your spouse, then receiving an inheritance is also a good opportunity to establish your own emergency fund and/or checking account.
If you feel comfortable with your emergency fund, then it’s time to examine your retirement and investments.
4.) Open or Contribute to a Retirement Account
Receiving an inheritance can be an opportunity to strengthen your retirement savings and build financial security on your own terms, especially if you’ve been managing your retirement with your partner up until now.
There are two common types of retirement accounts:
- 401(k): An employer-sponsored retirement savings plan with special tax benefits. These plans are only available through your employer and have a contribution limit of $24,500 in 2026. If you’re already enrolled in a 401(k), consider raising your contribution rate and using your inheritance funds to cover the drop in take-home pay. If your employer doesn’t offer one, you can always consider an IRA.
- Individual Retirement Account (IRA): A tax-advantaged investment account designed to help you save for retirement, without the help of an employer. If you have taxable compensation, such as wages, you can open an IRA and contribute up to $7,500 in 2026 if you’re under 50, or $8,600 if you’re 50 or older.
Retirement accounts aren’t your only option, either. Assuming you’ve already maxed out your contributions, you can always open your own brokerage account and start to invest your money. Here are a few tips to keep in mind when investing:
- Building a diversified investment portfolio is critical: Diversification spreads your money across different asset classes, so a bad year in one area does not sink the whole portfolio. This most often includes stocks and bonds. Investing in real estate can provide further diversification and also help hedge against inflation.
- Consider dollar-cost averaging to invest large sums gradually: Dollar-cost averaging is when you invest a fixed amount of money on a set schedule, ignoring whether the market goes up or down. This helps remove the risk that you invest everything one day before a sharp decline, and it makes a large sum easier to commit.
- Consider investing in low-cost ETFs: Exchange-traded funds (ETFs) are a single fund you can buy that owns dozens, if not hundreds, of different assets. They offer a simple solution for diversifying your portfolio.
Investing comes with a learning curve, so it’s best to seek professional advice before making any decisions.
5.) Contact a Financial Professional
Opening an investment account means putting your inheritance money at risk. Investing inherently creates the risk that you might lose money. However, there are many ways that you can mitigate this risk, which is why it’s important to contact a financial advisor before making any long-term decisions.
A financial advisor can help offer guidance on topics like:
- Choosing the right investments for your risk tolerance
- Determining your time horizon, or how long you want to keep your money invested
- Opening the right account to fit your goals
- Being aware of any current or future tax obligations and helping you stay compliant
- Monitoring the portfolio over time to make adjustments as needed
4 Mistakes to Be Aware Of
1.) Splurging on a Big Purchase
One of the most common mistakes is treating yourself to one major purchase. Think: a once-in-a-lifetime vacation, an expensive car, or a luxury apartment. Ultimately, the inheritance money is yours to spend, and you can do so how you choose.
That said, splurging on a single expense often creates a short-term sense of fulfillment, but a long-term sense of regret.
2.) Letting Lifestyle Creep Take Over
Spending through an inheritance can be surprisingly easy, even if you don’t spend tens of thousands on a new car or a lavish vacation. The more common scenario is that you’ll slowly start to spend more on everyday expenses.
Eating out at restaurants or getting food delivered becomes a necessity, not a treat. One initial shopping spree turns into a monthly habit of buying new clothes. You move into a nicer apartment and commit to a much higher rent payment. These examples are called lifestyle creep.
Lifestyle creep is when your standard of living rises alongside an increase in income. It’s a common tendency when you land a higher-paying job or receive a windfall of cash – like an inheritance. Lifestyle creep is especially dangerous because you hardly notice it. Each purchase you make is fairly small, but over time, you can quickly spend through an inheritance.
3.) Making Every Decision By Yourself
Navigating the months after a family member passes is tricky. Not only are there dozens of financial decisions to make, but there’s also a human element. Relatives may have strong opinions about how you should spend the money. Friends may bring you business ideas. Clever salespeople could start to call unannounced.
A financial advisor offers a neutral second opinion to lean on when making difficult decisions. When choosing an advisor, make sure to find one that’s fee-only. A fee-only advisor does not accept commissions on financial products and is required to offer advice in your best interests. Since they do not receive commissions, they aren’t incentivized to sell you a product or influence your decisions, creating an additional layer of trust.
4.) Failing to Prepare for the Tax Obligations
Inheritances and estate planning often spark a wide array of taxes.
The estate itself may owe federal estate tax, which is paid by the executor, and you may owe capital gains tax if you’re selling any assets. You may also have to pay inheritance tax, depending on your state. Though there is no federal inheritance tax in the US or in certain states like Arizona, some states may require it.
Planning Your Inheritance Money With ARQ Wealth
As the great wealth transfer plays out, many women will find themselves on the receiving end of an inheritance and in the unique position to answer the question: What are my financial goals? Whether you want career flexibility, to build a new home, or a stronger foundation for retirement, ARQ Wealth is here to help.
ARQ Wealth is a fee-only fiduciary firm in Scottsdale, Arizona, that is required to serve your best interest at all times and never place our interests ahead of yours.
That structure matters most in the months after an inheritance, when the pressure to act is highest. We start by looking at the full picture: what you inherited, how each asset is taxed, and what you want your life to look like in five, ten, and thirty years. From there, we build the plan — the withdrawal schedule for an inherited retirement account, the decision to keep or sell a family property, the debt to clear first, and the money to invest for later. We coordinate with your CPA and attorney so the tax and legal pieces line up.
Schedule a free consultation to start building a financial plan that works for you.
Frequently Asked Questions
Do I owe capital gains tax on inheritance money?
Usually not on the inheritance itself. The IRS generally does not count inherited cash or property as taxable income. Capital gains tax applies later, if you sell an inherited asset. Your basis is generally the fair market value on the date of death, so only the gain after that date creates a tax liability. Ask a tax advisor to confirm the figure before you sell.
What should I do with inheritance money before investing it?
Start by building a comprehensive financial plan. Write down your goals, your debts, your emergency fund target, and how long you can leave the money alone. You may also want to consider seeking legal or tax advice.
Do I need a tax professional when receiving inheritance money?
In most cases, yes. Inherited retirement accounts, real estate, and state-level rules each carry different tax treatment, and a potential wrong move can be expensive to undo.