What to Do With an Inheritance: A Planning Guide

Most inheritance decisions do not need to be made right away. A common starting point is to pause, list what was inherited and how each asset is titled, learn how each may be taxed, and then consider how it fits your existing plan before involving a CPA, estate attorney, or financial planner as needed.

Receiving an inheritance often arrives during a hard time, and it can come with real pressure to act. For households in this area, including families across Allentown, Bethlehem, and Easton, the question is usually what to do with the money and in what order. This guide walks through six planning questions in a sensible sequence. It is educational, does not apply to any one family, and is not a recommendation about what to do with your own inheritance.

Sources and as-of date: federal rules come from the IRS (gifts and inheritances, reviewed by the IRS September 29, 2026; estate tax, reviewed October 23, 2026; retirement topics: beneficiary, reviewed August 1, 2026). Pennsylvania rules come from the Pennsylvania Department of Revenue inheritance tax page. All pages were checked for this article on November 3, 2026. Tax rules change, so check each page for the current version.

1. Should you pause before deciding?

Often, yes, if no deadline requires a decision. An inheritance can be an emotional event, and large decisions made quickly can be hard to reverse. Pausing gives you time to gather facts and ask questions.

What a pause may help with. It may give you time to confirm what you actually received, learn the tax treatment, and avoid decisions you might later reconsider, such as selling a home, making large gifts, or lending money to family.
The limitation. A pause is not always possible. Some items carry dates, including certain retirement account distributions and tax filings. Waiting also has costs if an asset, such as a house, has ongoing expenses.

If someone urges you to move money or buy a product right away, that is a reason to slow down. Our guide to financial advice for surviving spouses separates what usually cannot wait from what often can, and much of that thinking applies to any heir.

2. What was inherited, and how is each asset taxed?

Start by listing every asset, how it is titled, and who is named as owner or beneficiary. Then ask how each type may be taxed. The treatment differs by asset, and your attorney and CPA can confirm each one.

Real estate and other property. The IRS says the basis of property inherited from a decedent is generally its fair market value on the date of death, or on an alternate valuation date if the executor makes that election on an estate tax return. If you later sell it for more than your basis, you may have a taxable gain. The limitation is that you need good records, so ask the executor for date-of-death values.
Bank accounts and cash. How an account is titled, such as joint with right of survivorship or in the decedent's name alone, may affect how it passes and how Pennsylvania treats it. See the Pennsylvania guide linked below.
Taxable investment accounts. The same basis rule applies, so a sale soon after inheriting may produce little gain or loss, while a later sale reflects any change in value since the date of death. Holding investments also involves risk, including the potential loss of principal.
Retirement accounts. These follow separate rules, covered in question 4.
Life insurance and annuities. The Pennsylvania Department of Revenue treats these differently for inheritance tax, as described in our Pennsylvania inheritance tax guide.

A note on federal estate tax. The IRS says a federal estate tax return is required only when the decedent's gross estate, increased by adjusted taxable gifts and the specific gift tax exemption, is valued above the filing threshold for the year of death, which is $15,000,000 for 2026 (IRS, reviewed October 23, 2026). That filing is generally the estate's responsibility, not the heir's, and the IRS says most relatively simple estates do not require a filing. Whether it applies to a given estate is a question for the estate's attorney.

3. How does the Pennsylvania inheritance tax apply?

Pennsylvania imposes its own inheritance tax, and it is separate from the federal rules above. The Pennsylvania Department of Revenue says inheritance tax payments become delinquent nine months after the date of death, and a 5 percent discount is allowed if the tax is paid within three months (Department of Revenue, checked November 3, 2026).

The rate depends on the heir's relationship to the person who died, not on the size of the estate. We cover the rates, what counts as taxable property, joint accounts, and filing steps in our guide to Pennsylvania inheritance tax, so this article does not repeat them.

Why it matters to the question of what to do with the money. The tax is generally an estate matter, and an executor may need cash to pay it. That can affect when and how assets are distributed to heirs.
The limitation. Which rate and rules apply turns on facts such as who inherits, how property was titled, and where the decedent lived. A Pennsylvania estate attorney can explain how it applies.

4. How do inherited retirement accounts differ?

Inherited IRAs and workplace retirement plans are often the most technical part of an inheritance. This guide points to official IRS guidance rather than summarizing every rule, because the answer depends on specific facts.

Per the IRS (retirement topics: beneficiary, reviewed August 1, 2026):

Distribution rules apply. Beneficiaries of retirement accounts are subject to required minimum distribution rules, and the options depend on the year the owner died, the beneficiary's relationship to the owner, and whether the owner had reached the required beginning date.
A lump sum is generally possible. Beneficiaries of an IRA and most plans may take a lump sum at any time, but must include taxable distributions in gross income. The trade-off is that a large withdrawal may add significantly to one year's taxable income, while a slower schedule is limited by the account's distribution deadlines.
Spouses may have more options. The IRS says a spouse who is the sole beneficiary has more options than a non-spouse beneficiary.
Many other beneficiaries face a 10-year rule. For deaths in 2020 or later, a designated beneficiary who is not an eligible designated beneficiary generally must empty the account by the end of the 10th year after the year of death. Eligible designated beneficiaries, such as a minor child of the owner or a disabled or chronically ill individual, may have other options.
Inherited Roth accounts differ. The IRS says withdrawals of contributions from an inherited Roth IRA are tax free, and most withdrawals of earnings are also tax free, though earnings may be taxable if the Roth account is less than five years old.
Workplace plans follow the plan document. The plan administrator should explain the options available.

For details, see the IRS's Publication 590-B and Publication 559. Missing a required distribution can carry consequences, so confirm dates with a tax professional before moving any money. For a spouse's rollover choices, see our surviving spouse guide.

5. How does the inheritance fit your existing plan?

Once you know what you have and how it may be taxed, the next question is how it connects to your own goals. This is where planning, rather than a single product or transaction, tends to matter.

Cash flow and reserves. Consider whether you have an emergency reserve and how the new assets might change what you can comfortably spend. A larger balance can make spending feel easier than it is over a long retirement.
Debts and goals. Consider outstanding debts, education or home goals, and giving. Each use of money has a trade-off, such as less liquidity after paying down a loan.
Taxes over several years. A taxable distribution or sale in one year may affect your tax bracket and other income-based items. Our guide to tax planning benefits outlines how taxes fit into the broader plan.
Retirement income. If you are near retirement, an inheritance may change how you think about Social Security timing and withdrawals. See our guides to retirement income planning and Social Security claiming strategies.
Your own estate plan. New assets may change who should inherit from you and how. Review your own wills, beneficiary designations, and account titling. Our article on estate planning advisors in the Lehigh Valley explains how this coordination works.
Concentration and risk. If the inheritance includes a large single position, a house, or a business interest, think about how much of your overall picture it represents. Our financial planning process describes how we organize these questions.

The limitation is that no framework fits every household, and results depend on individual circumstances and are not guaranteed.

6. When is a financial planner, CPA, or estate attorney worth involving?

Each professional covers a different part of the same picture. Many households benefit from hearing from more than one.

Estate attorney. Legal questions about the will, trusts, probate, titling, and deeds, and what the executor must do. A planner does not provide legal advice.
CPA or tax professional. Tax filings, date-of-death basis, estimated taxes, and how inherited retirement account distributions affect your return. A planner does not replace tax preparation.
Financial planner. Organizing the full list of assets, building a cash flow picture, and coordinating decisions across taxes, retirement income, and your own estate plan. A planner may help when the inheritance is large relative to your finances, includes several asset types, or touches your retirement timing.

The limitation is cost and complexity: more professionals means more coordination. A smaller inheritance with simple assets may need little help, while a larger or more complex one may justify a team. For how we charge, see our fee schedule, and for the households we work with, see who we help.

Questions to bring to your professionals

Who is the executor or trustee, and what are the key dates?
What was inherited, how is each asset titled, and what are the date-of-death values?
Does a Pennsylvania inheritance tax return apply, and who files it?
Which inherited accounts are pre-tax, Roth, or taxable?
If there is an inherited IRA or plan, which distribution rule applies to me, and by what date?
What are my options for cash I may not need right away, and what are the trade-offs of each?
How does this change my own retirement income, tax picture, and estate documents?

Frequently Asked Questions

What should I do first when I receive an inheritance?

Many people find it helpful to pause and gather facts before making irreversible decisions. That usually means confirming what was inherited, how each asset is titled, who the executor or trustee is, and whether any deadline applies. Most financial decisions about an inheritance have no immediate deadline, though a few, such as certain retirement account distributions, do. An attorney and a tax professional can help you list the real dates.

Is an inheritance taxable?

It depends on the asset and the rules that apply. The IRS says the basis of inherited property is generally its fair market value on the date of death, and a sale for more than that basis may produce a taxable gain. The IRS also says taxable distributions from an inherited IRA or retirement plan must be included in the beneficiary's gross income. Pennsylvania has a separate inheritance tax that depends on the heir's relationship to the person who died. A CPA can explain how these rules apply to you.

Should I pay off debt or invest an inheritance right away?

There is no single answer, and this guide does not recommend one. Paying down debt may reduce interest costs but also reduces cash on hand. Investing may offer growth potential but involves risk, including the potential loss of principal. Many households start by holding the money in a safe, accessible place while they review their goals, taxes, and cash flow. Your own situation, and your professionals, should guide the decision.

How is an inherited IRA or 401(k) different from other inherited assets?

Inherited retirement accounts are subject to required minimum distribution rules, and the options depend on factors such as the year of death, your relationship to the account owner, and whether the owner had begun required distributions. The IRS says a spouse who is the sole beneficiary generally has more options than other beneficiaries, and many non-spouse beneficiaries must empty the account within 10 years. Taxable distributions count as income. Review the IRS guidance and your plan's terms with a tax professional before moving money.

Do I need a financial planner, a CPA, and an estate attorney?

They handle different parts of the same picture. An estate attorney addresses legal questions such as titling, trusts, and the estate process. A CPA addresses tax filings and tax basis. A financial planner may help organize cash flow, goals, and how the inheritance fits your existing plan, but does not replace the other two. Whether you need all three depends on the size and complexity of what you received.

Next Step

If you would like to talk through how an inheritance may fit into your broader plan, you can schedule a conversation with our team. We work alongside your estate attorney and CPA, and any outcome depends on your circumstances. These related resources may help you prepare:

Pennsylvania taxes: Pennsylvania inheritance tax: rates and rules and does Pennsylvania tax retirement income?
After the loss of a spouse: Financial advice for surviving spouses
Estate coordination: Estate planning advisor in the Lehigh Valley

This article is for general educational purposes only and is not individualized tax, legal, or investment advice. Tax rules change, and results depend on your individual circumstances. Coordinate with a qualified estate attorney and tax professional about your situation.