At a glance

  • Park your money in a low-risk account until you decide on your next steps.
  • Consider allocating a portion of your inheritance to retirement and emergency savings.
  • Maximize the value of your inheritance over the long term by paying off debt and investing for other goals.

If you aren’t wealthy right now, a future inheritance isn’t likely to transform you into a high-net-worth investor overnight. But any inheritance, regardless of the amount, has the potential to improve your outlook for the future, reduce your debt, and help you achieve other financial goals.

Take it slow

Mary Franks

Avoid making any quick decisions about how you spend (or save) the money you receive. “It probably took your benefactor several years—maybe even a lifetime—to accumulate his or her wealth,” said Mary Franks, a senior financial advisor in Vanguard Personal Advisor Services®. “Remove the temptation to make an impulsive decision by depositing the money in a separate account for a set period of time, such as 3 months. This will keep the money out of your immediate reach while you process the life event you just experienced and think about your next steps.”

Money market funds can be a safe and convenient choice for holding your inheritance until you decide on your next steps.

Ask for help

For many, partnering with a financial advisor is the next logical step in successfully managing an inheritance. An advisor can:

  • Manage your finances objectively so your emotions don’t dictate your financial decisions. “In some cases, a dollar is worth more than a dollar,” said Franks. “The feelings people associate with money are often tied to its source. You probably wouldn’t spend $50 you found in the parking lot the same way you’d spend $50 of earned income.”
  • Help you say “no” to impromptu monetary requests. If you receive a substantial windfall, you may find yourself suddenly surrounded by more friends and family than you knew you had, each one more deserving than the next. An advisor can help you incorporate charitable giving (and gifting money) into your financial plan so you can avoid on-the-spot decisions.
  • Create a financial plan that reflects your short- and long-term goals. “It’s easier for most people to focus on addressing their immediate financial concerns—such as paying off a car loan or paying for a child’s college tuition—rather than thinking about long-term needs, like retirement. What’s happening now is reality, whereas the future can feel hypothetical. A financial advisor can help you prioritize multiple goals so you can benefit from your inheritance for years to come,” Franks said.

More information:
Money market mutual funds: Preserve your cash until you decide how to use it
Partner with an advisor

What to prioritize

Answering the question “What would you do if you had an extra $50,000?” can be a fun conversation starter, but deciding how to allocate a large sum of cash can be stressful.

Franks encourages clients to make a list of what they want to accomplish. “Write down what you want to do with your money. Even if your goals feel like they’re all over the map, chances are they revolve around two key themes: financial security and quality of life. Categorizing your goals can help you come up with a plan.”

Financial security

Being prepared for retirement and having money set aside for emergencies can make you feel confident and secure.

  1. Retirement
    Aim to save 12%–15%, including any employer match, of your annual income for retirement. If you’re not there yet, consider using your inheritance to make up the difference.

    “Saving 12%–15% of your yearly income puts you in a good position to replace a large portion of your income in retirement. Although the cash you inherit isn’t generally considered ‘income’ because it’s not reported on your federal income tax return, if the amount you inherit changes your lifestyle, consider boosting your savings rate,” Franks said. “Just be mindful that you can’t contribute more to a retirement account than you’ve earned for the year.”
  2. Emergency savings
    People seldom regret having emergency savings; they regret not having emergency savings. Don’t be sorry—save enough to cover 3 to 6 months of living expenses.

More information:
How much should you save for retirement?
IRA contribution limits
Emergency fund

Quality of life

Money can’t buy happiness, but it can be used to pay off debt, support a charitable cause, pay for college, or buy a house—all of which can bring you satisfaction. Here are some ways to improve your bottom line . . . and possibly your life.

Pay off debt

Focus on eliminating your high-interest debt one creditor at a time—while continuing to pay at least the minimum amount due on all of your outstanding debt.

Say you have a $7,000 credit card balance that’s subject to a 15% interest rate. If you paid off that balance in one lump sum—versus paying $150 a month for almost 6 years—you’d save yourself over $3,500 in interest.

More information:
How to take control of your debt

Invest for other goals

Money can open the door to more opportunities than you’ve had before. Spend—and save—wisely.

Save for college
You can save for a loved one’s education or your own. Consider investing in a 529 college savings plan, which is a special account that offers high contribution limits and tax savings on money that’s used for qualified higher-education expenses.

More information:
Help someone save for college

Be charitable
If you have a sum of money that you’d like to earmark for charitable giving, you can open a donor-advised fund. This type of investment account allows you to receive an immediate tax deduction and make grants to charitable causes over time—giving your original contribution time to grow.

If you plan on making cash gifts to loved ones, be as practical as you are generous. You can avoid being subject to federal gift taxes if you:

  • Gift $15,000 per person per year (if it’s a joint gift from you and your spouse, you can gift $30,000 per person) for the 2019 tax year.
  • Pay for someone’s tuition or medical expenses, as long as you pay the school or medical provider directly.
  • Give any amount to your spouse.
  • Give to a qualified charity.

More information:
Learn about Vanguard Charitable FAQs on gift taxes

Save for something else
Here’s what you need to know if you’re saving for something other than retirement or college:

  • You can open a nonretirement (taxable) investment account individually or as a joint owner.
  • Your investment earnings (the money your money makes) will probably be subject to federal, state, and possibly local taxes. The tax rate depends in part on your income and how long you hold the investment.
  • Choose an asset mix based on your investment goal, your time frame before you’ll need the money, and your tolerance for risk.

Patience can pay off. Say you want to earmark $20,000 of your inheritance to put toward a new house. If you buy a house today, you’ll have $20,000 to put down. If you extend your time frame by four years and invest that amount in a fund with an average annual return of 6%, you’d have an extra $5,200+ to put toward your goal.

More information:
Open a joint account or an individual account
Other savings goals: A house, a wedding, a car
Choose an asset allocation

Treat yourself

“Arguably, the best part of receiving a windfall is making a purchase that you otherwise wouldn’t be able to afford,” said Franks. “If you want to ‘splurge’ on something, try limiting the amount you spend to 3%–5% of the cash you inherit. Giving yourself an opportunity to enjoy some of your newfound wealth can satisfy your desire for immediate gratification and give you the motivation to take a disciplined approach with the remainder.”


All investing is subject to risk, including the possible loss of the money you invest.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.

We recommend that you consult a tax or financial advisor about your individual situation.