Question 1

What should I do with a large inheritance or the proceeds of selling my business?

Accepted Answer

Start with a plan, not immediate purchases or investments. Keep near-term funds secure and liquid, respecting deposit-insurance limits, and reserve money for applicable taxes. Review debts, spending needs, and long-term goals. Work with qualified financial, tax, and estate professionals to develop a diversified investment strategy and update your estate plan.

Question 2

Do I have to pay tax on an inheritance?

Accepted Answer

Usually not at the federal level. Any federal estate tax is paid by the estate before assets are distributed. A few states charge an inheritance tax on the heirs, depending on your relationship to the person who died. Inherited stock and real estate generally receive a step-up in basis, while inherited traditional IRAs are taxed as you withdraw.

Question 3

What is the 10-year rule for inherited IRAs?

Accepted Answer

Most people who inherit an IRA from someone other than a spouse must empty it within ten years of the owner's death. If the owner died on or after the date they were required to begin taking minimum distributions, you generally must take annual minimum withdrawals during the first nine years and empty the account by the end of year ten. Spouses, minor children and certain others have more flexible options. Spreading withdrawals can avoid a large tax bill in one year.

Question 4

What should I do with the money after selling my business?

Accepted Answer

Treat it like any large windfall: secure the cash, set aside the taxes, and plan before investing. For business owners, the sale often removes the asset that produced their income, so the new portfolio may need to replace that income. It is also a natural moment to update your estate plan and charitable goals.

What should I do with a large inheritance or the proceeds of selling my business?