You’ve just received a large cash inheritance. Once you get over the shock of it (since it’s usually associated with a death and therefore with grief), it’s a bit exciting, right? However, it’s also very overwhelming. You are thrilled to have this money. But you also have a lot of questions. For example, you want to know how to deposit a large cash inheritance without interference from the IRS.
Taxes When You Deposit a Large Cash Inheritance
There are many different ways that you can inherit money and property after someone dies. Some of these are taxable. Others are taxable in certain situations. The whole situation can get really confusing. However, if you’ve inherited cash, and it’s a large amount but not excessively large, then typically you don’t have to worry about federal taxes.
Turbo Tax explains that inheritances themselves, including property, aren’t taxable by the federal government at the time that you inherit them. However, money you earn off of that inheritance later is taxable. For example, if you sell an inherited property, then you may owe taxes.
Moreover, Turbo Tax emphasizes that each state has different laws about trading inheritances. Generally speaking, if you receive a cash inheritance that’s not millions and millions of dollars, you shouldn’t have to worry about taxes. However, you need to check with your state or work with a personal financial advisor who understands your state’s laws to make sure about this.
If you do find yourself in the unusual position of owing taxes on your inheritance, Turbo Tax suggests giving away some of that money. You can get a certain amount to people without having to pay a gift tax. Therefore, if you want to avoid taxes while helping others, then this might be a good solution.
Where to Deposit a Large Cash Inheritance
Other than taxes, you might have general logistics questions about how to deposit a large cash inheritance. After all, if you’ve been living like most of us, you don’t have a ton of money in your bank account. You might have some emergency funds, but you’re generally not working with tens or hundreds of thousands of dollars. So, do you just go deposit a large cash inheritance in your regular checking account?
Citizens Access points out that FDIC-insured bank accounts are usually only insured up to a quarter of a million dollars. Therefore, if you inherit more than that, then you need to consider other options. You don’t want to put all of your money in an account that’s not secured for that much in funds.
Discover recommends parking the funds in a CD or high-yield savings accounts for a period of time. They note that you want to move out of the grieving process before you make big decisions about how to use this money. And yet, you don’t want to miss out on the opportunity to earn a good interest rate on those funds. Therefore, high-percentage savings accounts offer a great opportunity.
When You’re Ready To Use The Money
Eventually, you’ll feel emotionally and financially prepared to use the money. Your options include:
- Paying off your debt.
- Making various investments.
- Setting up trusts for your own heirs.
- Donate some in your loved one’s memory.
Use the money wisely. Wait until you’re ready to use it. In the meantime, deposit it in a safe, secure, high-interest account.
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