By Danielle Arlotta, CFP®
Lead Planner, Brooklyn Plans
Receiving an inheritance can be emotional; most expect that. Many are not prepared for the tax implications or withdrawal rules that can surround inheriting money. Managing the transfer of assets, taxation rules, and investments is complex and should be handled accordingly. If you want to check your own approach, we created a quiz to test real pain points our clients have seen when managing their investments.
To learn more about what to look out for when inheriting money, read our client case study below.
Sam recently inherited money from their parents and wanted to use it in a way that honored them as well as supported their own goals. Sam wanted clarity, financially and emotionally. They wanted to understand what was possible and avoid costly mistakes.
As we reviewed their inheritance, we established that they would need to take required minimum distributions (RMDs) from their inherited IRA every year. They also needed to remove all the funds by the end of the 10th year after the inheritance.
Once we ran through what was needed logistically, Sam felt relieved. This allowed Sam to take a step back and consider their goals for this money. They wanted to use it so that they could take a lower-stress job and buy a home of their own.
The next steps were for us to establish a sustainable plan that allowed Sam to use this money for those goals.
We built an intentional plan to withdraw $20k a year from their inherited IRA while they were working. Once they made a transition into a lower-paying job, we would take out over $100k from their account until the 10-year mark.
Sam also had inherited other investment accounts that they needed to manage. We helped them get those accounts into a portfolio that supported their career change as well as their home purchase.
This is something we see often during periods of transition.
People inherit assets and assume the biggest challenge is deciding how to invest it. But often, the more immediate risk is not fully understanding the rules, timelines, and tax implications tied to those assets.
It’s about understanding how distribution requirements, timing, taxes, and life decisions all intersect. It’s important to make those decisions in a way that supports both your financial future and your personal needs in the moment.
And that’s often where professional support makes the biggest difference: not just in what to do, but when and how to do it in the context of your life. We help clients create a plan to fit their lives. Book a consultation today!