What to Do With Inherited Money: A Step-by-Step Guide

By Citadel Financial Tips | May 22, 2026

Category: Nearing Retirement Estate Planning & Long Term Care

Topic: Managing Finances Wealth Planning

a perplexed couple learns what to do about their inherited wealth

✓ Quick Answer

Inheriting money is more than a financial event — it's a deeply personal moment. We're here to help you move forward with clarity, confidence, and a plan that honors both what you've received and where you want to go.

Why Inheriting Money Feels Complicated

On the surface, receiving an inheritance can look like good news. But if you've recently lost someone you love, it's rarely that simple. Grief, gratitude, guilt, and the fear of making the wrong move can hit all at once — and that's completely normal.

At Citadel, we understand that inherited wealth comes with emotional weight, not just financial decisions. Whether you're navigating this right now or want to be prepared, we're here to walk alongside you — every step of the way.

woman learning what to do about the money she inherited

Step 1: Give Yourself Permission to Pause

The most important thing you can do first? Don't rush. Grief and financial decisions are a difficult mix, and the wisest move is often to slow down before making any major choices.

In the days right after learning about an inheritance, focus on:

Gathering important documents (wills, account statements, property records)
Connecting with an estate attorney and/or a financial advisor you trust
Giving yourself space to reflect on what this inheritance means to you personally.

Quick tip: Creating space to process the emotional meaning of what you've inherited can actually lead to smarter, more values-aligned financial decisions down the road.

Step 2: Protect What You've Received

Once you're ready to move forward, one of your first priorities should be making sure the inheritance is protected. Even well-intentioned financial decisions can leave assets vulnerable if the right safeguards aren't in place.

Keep inherited assets separate from marital property to help preserve their status.
Update or create a trust if the amount is significant.
Review your insurance coverage — life, liability, and property.
Refresh your estate documents — wills, beneficiary designations, and powers of attorney.

Without these protections, inherited wealth can become vulnerable to divorce, lawsuits, or simply poor planning. We can help you connect with trusted professionals who can put the right structures in place.

Step 3: Understand the Tax Picture

Taxes shouldn't drive every decision you make — but ignoring them entirely can cost you. Here's a straightforward look at how taxes may come into play:

Situation	What to Consider
Cash or investments	Work with a tax professional to spread distributions over time, donate in a tax-smart way, or use assets for long-term goals efficiently.
Inherited retirement accounts (from a spouse)	You may be able to roll funds into your own IRA. Consider strategic Roth conversions over time.
Inherited accounts (non-spouse)	Focus on timing distributions around your income levels and major life transitions.

Step 4: Define Your Financial Goals — Intentionally

This is where you get to make the inheritance truly yours. Before you invest a single dollar, take time to write out your financial goals and rank them by importance and timeline.

Here are two practical approaches to get you started:

Boost your retirement savings first. If you're not already maxing out your pre-tax retirement contributions, consider doing so now. You can use inheritance distributions to make up the difference in your take-home pay while putting more into a tax-advantaged account.
Park it safely while you plan. Not sure what to do yet? That's okay. If the amount is under FDIC limits ($250,000 per person, per institution), consider placing it in:
- A high-yield savings account
- A money market fund
- A certificate of deposit (CD)

Step 5: Invest with Your Future in Mind

When you're ready to invest, match the strategy to your timeline. Money you won't need for many years can be invested more aggressively for growth. Money you'll need soon should be invested more conservatively to protect what you have.

Your risk tolerance matters just as much as your timeline. We're here to help you find the right balance — one that helps you grow your wealth without losing sleep at night.

Frequently Asked Questions About Inherited Wealth

The questions below reflect what people commonly ask when navigating an inheritance.

Do I have to pay taxes on money I inherit?

In most cases, inherited cash is not subject to income tax for the beneficiary. However, if you inherit a retirement account, withdrawals are generally taxable as income. Inherited investments may also be subject to capital gains tax if you sell them. We always recommend consulting a tax professional to understand your specific situation.

What should I do first when I receive an inheritance?

Don't rush. Give yourself time to grieve and process before making major financial decisions. In the short term, gather important documents, consult an estate attorney, and place the funds somewhere safe while you plan.

How should I invest an inheritance?

Start with your goals and timeline. Money needed in the near term should be invested conservatively. Long-term funds can be invested more aggressively for growth. A financial advisor can help you build a plan that fits your specific situation and risk tolerance.

Should I pay off debt with an inheritance?

It can make sense to pay off high-interest debt, like credit cards, with inherited funds. For lower-interest debt, like a mortgage, weigh the benefit of paying it off early against the potential returns of investing the money instead.

How do I find a financial advisor I can trust?

Look for a fee-only, fiduciary financial advisor — someone who is legally required to act in your best interest. Resources like the Garrett Planning Network (garrettplanningnetwork.com) and the XY Planning Network (xyplanningnetwork.com) are great places to start. As a Citadel member, you can also speak with one of our financial wellness advisors.

We're Here When You're Ready

An inheritance is a significant moment — financially and personally. You don't have to navigate it alone. At Citadel Credit Union, we're here to help you build a brighter financial future, one that honors where you've been and where you want to go.

Whether you're just starting to process a windfall or ready to put a full plan in place, our team is here for you. Visit us at CitadelBanking.com or stop by any of our branch locations throughout Greater Philadelphia.

This content is provided for educational purposes only and is not intended as financial, legal, or tax advice. Please consult a qualified professional for guidance specific to your situation. Citadel Credit Union is federally insured by the NCUA. © 2026 Citadel Credit Union. All rights reserved.