3 Tips on Protecting and Managing Yourself After an Inheritance

On the outside, this may seem like the best problem to have – you’ve inherited money or received an unexpected windfall and there is so much you don’t know what to do with it all. The reality of this situation is always a bit different than the brain can imagine. Studies have shown that most people spend all of their inheritance within five years. Here are our three top tips on keeping that money and making it work for you.

1. Goals

The biggest question you face after coming into a larger sum of money is ‘what will it be used for?’. Define your goals, both long and short-term. Typically, people want to pay off debt first, which can be a great overall goal. Think of this scenario, too. Let’s say you inherit $100,000 and your mortgage is also $100,000. You decide to pay off your home and save yourself the monthly payment. Then, for whatever reason, you lose your job – there is no financial cushion to fall back on.

One answer to this problem is to spend some of the inheritance to pay down debt and to save some. This way, some of your financial burdens are eased and your future is safer. Also, depending on where you put the remaining money, it can grow over time and continue to help you further down the road.

2. Tax Consequences

If you’ve inherited an IRA or 401(k), you’ll have to pay taxes on the money when it is withdrawn from the account. This is because the money put into these accounts is pre-tax dollars and when pulled out, it is subject to income taxes. Here is something to consider – if the entire amount is pulled out all at once, it could put you in a higher tax bracket and you’ll end up paying much more in taxes than normal. By structuring a slow and steady withdrawal, you’ll limit your tax liabilities and potentially save yourself money in the long run.

3. Plans

Now that you know your goals and understand the tax consequences, you need a plan to make it all happen smoothly. Look at what is happening in your life right now and establish steps to take to make your future vision come through. Perhaps you went to school to become an engineer and your job is okay. Along the way, you’ve developed a passion for cooking and you really would like to learn to be a chef and maybe have a food truck. The right plan will let you make those dreams a reality.

Meyer Wealth Advisors is here to help you identify your goals, show you the economics of your ideas and create a plan. We provide needed guidance for saving and investing your money, whether you need it to grow for later, to help with bills now, or both. Enjoy your inheritance the way you desire. Call Meyer Wealth Advisors at 630-894-7770 to make sure you make it last as long as possible.