Inheriting money can be a confusing time. Often coming after the loss of a loved one, deciding what to do with the money or fund accounts can be a difficult decision. While most people tend to spend a little and save the rest, here are a few other ways you can spend your inheritance: Emergency
Inheriting money can be a confusing time. Often coming after the loss of a loved one, deciding what to do with the money or fund accounts can be a difficult decision. While most people tend to spend a little and save the rest, here are a few other ways you can spend your inheritance:
Emergency Fund
If you don’t already have at least three to six months worth of expenses saved in an emergency fund, now is the time to get one. Having a few months worth of savings separate from your general savings fund can be a lifesaver in the event of financial hardship. Emergency funds can cover your rent or mortgage and other bills while you look for another job or heal from a medical illness. This should be your first priority placement for inheritance money.
College Fund
If you have kids that are in or will be going off to college one day, using a portion of your inheritance to cover their costs of tuition and books will greatly reduce their need for borrowing student loans. With the average college graduate leaving with more debt than the average first salary, using inheritance money to help avoid this burden is an excellent investment in your child’s future.
Retirement Fund
Unfortunately, many companies aren’t offering the retirement fund matching perks they once used to. Many other people are self-employed or working towards retirement on their own, often with lesser priority on saving for retirement. While the idea of taking an expensive trip on the dollar of your inheritance money, that 2 week trip through Europe is going to be short lived compared to the comfortable retirement you could have if you invested your inheritance in a high-yield account. Remember that the trips of today can be the struggles of tomorrow.
Tax Considerations
Inheriting money can be tricky because of the tax implications. Generally, inheritance money is not taxable on the simply acquisition of the money. However, if you cash it out or transfer it to a taxable account, you may be responsible for declaring those amounts as income. If you were to liquidate some of the money in an inherited benefit fund, that may also be subject to penalty fees for early draws. Further, some states do have laws that can tax inheritance money so be sure to know the laws of your state. As far as real estate goes, inheriting property is not subject to taxes other than the new liability for any future property taxes. However, if you were to sell the property for more than it was worth at the time of acquisition you will have to pay capital gains taxes on the profit from the sale.
