Losing a loved one is never easy, which is why the gift you inherited comes with the responsibility to make the most of it for you and your family. In addition to the emotional side of inheriting, you may also be experiencing apprehension about what to do with this gift.
This is a guide to planning how you can get the most from an inheritance, with investment strategies designed to enhance the legacy you’ve been given.
Assess Your Current Financial Situation
· Calculate Your Net Worth: Add up the values of all your assets and subtract your debts to get a rough idea of your net worth. If applicable, include your spouse’s finances in this calculation as well.
· Emergency Fund: Be sure to allow for a rainy day. We typically recommend having three months of expenses set aside in an easily accessed account. Money is your security, so set aside a sum for unexpected costs.
Work with a Financial Professional
· Not everyone’s financial health, goals, and circumstances are the same, so it’s important to work with a qualified financial planner who will advise you based on your individual situation.
· Laws regarding inherited accounts change regularly, so having a professional in your corner to keep you updated on these changes can potentially save you from financial and emotional stress in the long run.
· Instead of feeling overwhelmed by an inheritance, working with a financial professional will bring clarity and relief in knowing you’re making informed decisions your benefactor would appreciate.
Pay Off High-Interest Debt
· Paying off high-interest debt, such as credit card balances, can give you a better financial balance.
· High-interest loans are another debt that can negatively impact your financial health. By paying these down, you will be putting yourself in a much better financial position.
· Before paying off mortgages or home loans, however, work with your financial advisor to be certain this is beneficial to your financial and tax situation.
Enhance Your Retirement Savings
· Be sure you are at least matching your employer’s contribution to your retirement plan.
· Boost your retirement accounts by contributing the maximum amount allowed each year.
· Consider contributing to a Roth IRA option if it’s offered through your employment benefits.
· If you are over age 50, consider catch-up contributions to your employer’s plan.
· Contribute the maximum amount allowed to your Healthcare Spending Account (HSA) each year.
· Work with your financial planner to rebalance the investments in your retirement plans to attempt additional growth.
Invest in Long-Term Growth
· Working with your financial advisor, build an investment portfolio with diversification in mind. While there are always risks to consider when investing, a diversification strategy strives to grow your investment over time.
Real Estate and Property Considerations
· When inheriting property, calculate the cost and value of the land, cabin, or home.
· Decide if you want to retain, rent, or sell depending on your budget and emotional connection.
· Discuss your decisions with a financial professional to understand the impact they may have on your financial situation.
Tax Planning
· Work with your financial advisor or tax professional to learn how inheritance taxes may affect your finances.
· Employ tax advantages to maximize your investment and savings plan.
· Donating to a cause you and your family are passionate about can provide you with a tax advantage and celebrate the memory of the person who has died.
Conclusion
Make the most of your loved one’s gift by putting it to work for you. Debt repayment, maximizing retirement accounts, long term investments, and tax planning are all strategies that can have a major impact on your finances over time. With the help of a qualified financial professional, you will gain the confidence in knowing you are making decisions that respect the gift of inheritance.
If you would like to learn more about what to do with your inheritance, contact Adam Grantham at MANIFEST by emailing: info@manifestplanning.com or call (952) 882-0400 or (763) 593-0649.
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Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.