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Inheritance

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Inheritance.

Whether you have inherited money or received another kind of financial windfall, we offer comprehensive investment help and guidance that’s right for you.

Let us help you manage an inheritance.

Although you may be thinking of how to spend your inheritance, you may want to consider how to invest your inheritance instead. You may get more from the inheritance in the long run if you apply it to your retirement savings, invest your inheritance, or pay off debts. A financial advisor can help you make a financial plan that will make the most of your inheritance.

Regardless of your plans, you don’t have to decide what to do with your inheritance right away. It may be a good idea to put the money in an FDIC-insured account (such as a savings account, money market account, or CD) while you take some time to decide.

If you would like some help figuring out what to do with an inheritance, Schwab is here for you. With a wide variety of investment options and a highly qualified team of Financial Consultants nationwide, we can provide comprehensive investment help and personalized guidance in a way that’s right for you.

Inheriting a retirement plan.

When you inherit a retirement plan such as an IRA or 401(k), you are generally required to take distributions during your lifetime or within five years of the death of the original account holder. If the inherited retirement account is a traditional IRA or 401(k), you will have to pay income tax on distributions from the plan. If the inherited retirement plan is a Roth IRA or Roth 401(k), you do not have to pay income tax on distributions. Regardless of the type of retirement plan you inherit, there are plenty of rules you will need to become acquainted with. Learn more about your options and the rules for withdrawing funds from inherited retirement accounts, or talk to a Schwab Financial Consultant to make a plan for your unique situation.

Inheriting money in a trust or will.

If you have inherited money in a trust, the trust assets won’t go through probate and can be immediately distributed by the trustee under the terms of the trust deed.

On the other hand, if you inherit money in a will, you probably won’t get the money immediately. The will must first go through probate, a legal process for distributing an estate to the heirs named in the will. There may not be much you can do to avoid going through probate once a loved one has passed away, but it helps to understand the process as you work with an attorney or tax advisor.

Understanding which assets pass through probate.

Generally, inherited retirement accounts and inherited investment accounts with Transfer on Death (TOD) designations will not have to go through probate if the accounts name a beneficiary. Most assets placed in trusts do not have to go through probate; the same is true for assets with joint ownership, which generally pass to the second owner when the first owner passes away.

Assets that are generally subject to probate include real estate and personal property, cash, investment accounts without transfer on death (“TOD”) designations, and assets without a beneficiary.

Checklist for inheriting money.

A Schwab Financial Consultant can help you:

  • Put the inheritance money in a safe, accessible account while you create a longer-term investment plan.

  • Assess your current assets and liabilities to help you decide where your inheritance money should go first (i.e., debt reduction vs. new investments).

  • Review your financial portfolio, adjust your long-term financial strategy, and create an investment plan for your inheritance.

  • Decide whether updates are needed to your estate plan. If so, a Financial Consultant may connect you with a Schwab tax, trust, and estate specialist.

  • Determine the tax implications of your inheritance, as well as the tax advantages of gifting and charitable giving.

  • Review your insurance needs and help you decide whether to increase any of your coverage levels.

What to do on your own:

  • Consult with a tax professional regarding the tax treatment of inherited funds. If they are taxable, put aside the amount that you will have to pay in taxes.

Let us help you manage an inheritance.

Call us at 877-302-5886 or visit your local branch.