A Guide on Investing Your Inheritance Money
So, what exactly is an inheritance?
Inheritance is simply the transfer of property from one person to another after a person passes away.
Property such as a house, cash, investments, jewelry, and other valuable goods are examples of assets.
Inheritances go to one of two people: a beneficiary (someone mentioned in a will) or an heir (a kid or surviving spouse).
It is critical to prioritize how the inheritance will be used. It makes sense to pay off any high-interest debt first, such as credit cards or personal loans. The same is true if you don't have enough money in your emergency fund to cover six months' worth of spending.
Receiving an inheritance might drastically alter your financial circumstances. You don't want to squander this present by blowing it all on useless goods. It has the potential to build generational wealth for you and your family if appropriately invested. There are nearly limitless ways to invest a big quantity of money received as an inheritance. The options you choose will be greatly influenced by the amount of inheritance you've received, your present financial situation, and your objectives.
Here are some of the best guides on investing your inheritance:
Contribute to an Individual Retirement Account (IRA)
This is your chance to contribute to your IRA if you receive an inheritance. For 2021, the maximum contribution per individual is $6,000 ($7,000 if you're 50 or older). If you have a spouse who isn't working, you can contribute to their IRA as well.
Make the most of your employer's retirement plan
401(k) and 403(b) accounts are examples of company retirement programs that allow you to save money for retirement directly from your paycheck. You can contribute up to $19,500 each year in 2021 ($26,000 if you're 50 or older). In addition, several employers match employee contributions to encourage participation. While most plans do not enable you to write a check to contribute to the business retirement accounts, you can increase the amount withheld from your paycheck to maximize your contribution. Then use your inheritance to make up the shortfall in your pay so you can pay your regular monthly expenditures.
Contribute to a health savings account
One of the most tax-advantaged investments is a health savings account (HSA). When used for eligible medical costs, your contributions are tax-deductible, the money grows tax-deferred, and withdrawals are tax-free. The money can be put into stock-based investments and earn a good return for years before it is needed.
Establish a brokerage account
A brokerage account is a type of investment trading account that allows you to deposit and withdraw funds at any time without incurring any fees. There are no restrictions on how much you can contribute, and unlike retirement accounts, you won't be penalized if you withdraw before reaching retirement age.
Purchase a rental property
One of the most popular ways to invest in real estate is through rental properties. These properties generate monthly rental income and have the potential to appreciate in value. In addition, for certain investors, rental homes provide appealing tax benefits. There are other possibilities if you don't want to take on the obligations of direct property ownership. Real estate investment trusts (REITs), exchange-traded funds (ETFs), mutual funds, and FinTech apps are all options for diversifying your real estate portfolio.
Invest in an emergency fund
Even if you've received an inheritance, unexpected events can arise. When you need to pay for an emergency, you don't want to have all of your money invested. A common goal for emergency money is to save aside three to six months of your monthly expenses.
