Figuring out what to do with the money you receive from an inheritance can be overwhelming. Take your time and evaluate all the options available. This way you can make good decisions about the best ways to save and spend your windfall.
Place the cash in a liquid account
Before making long-term decisions, deposit the funds into a Money Market Account or Share Term Certificate for three to six months. Let the money sit while you work through your time of grief. Meanwhile, your cash will earn money for you through dividends.
Spend time thinking about your personal values and how they influence your financial goals. Look at several available options for spending and investing what you inherited to help you reach those goals.
Find out if you’ll have to pay a tax
Your inheritance could come with a tax liability. Even though North Carolina doesn’t have an inheritance tax, you may get a tax bill from that state. if you inherit from someone who lived somewhere else. Be sure to check with your tax or financial advisor to determine if you’re responsible for a tax bill. That could be an unexpected expense, prompting a change in financial strategy.
Reduce debt and increase savings
Once you’ve had time to process your grief and find out about taxes owed, pay down debt such as high interest rate credit cards, personal loans and automobile loans. Once your consumer debt is paid, build an emergency fund of three to six months of living expenses, if you don’t have one already.
Make retirement contributions
You can never put too much money away for retirement. Contribute the maximum amount allowable to a Traditional or Roth IRA. With a Traditional IRA, contributions may be tax-deductible. You’re only taxed on the deductible contributions you’ve made and earnings you’ve received over time when you make withdrawals. A Roth IRA allows you tax-free withdrawals if you meet certain IRS rules.
Have some fun
After all bills are paid and a savings plan is in place, use some money for fun. Take a trip, go shopping or buy something you’ve been putting off. Just be sure to set an amount to spend and stay within that budget.
Consider these tips to help you make the right decisions for managing your inheritance. As a member, you can get complementary financial counseling by calling or visiting your local branch to speak with a professional. If you’re already set with short term savings vehicles mentioned above consider other investment strategies like stocks or bonds for the long run. A trusted financial advisor can help.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.