What to Do With a $5 Million Inheritance

Inheriting $5 million can be a tremendous financial opportunity, but financial planning is still important. With more assets and tax considerations to take into account, it can help to plan ahead. As a result, understanding what you’ve inherited and how you might minimize tax consequences may have as much of an impact on your wealth as investing right away.

Do you have questions about how to handle a windfall? Speak with a financial advisor today.

Understand What You Inherited

A $5 million inheritance is rarely a single check. More likely, it’s a mix of assets, each with their own rules for taxes, liquidity and long-term planning. Before making any financial decisions, it can help to create a complete inventory of what you’ve inherited, and identify how each asset is titled. This can help when it comes time to determine whether it’s subject to distribution rules and what type of tax treatment applies.

Because larger estates tend to be more complex, it’s common to inherit several asset types at once. Understanding each one separately can potentially help you minimize mistakes and prioritize the most immediate decisions.

With a larger inheritance, the challenge is often less about choosing investments and more about coordinating multiple asset types with different tax rules and timelines. Taking inventory first help build the foundation for every decision that follows.

Accounting for Taxes

One mistake heirs may make is assuming all inherited assets are taxed the same way. With a $5 million inheritance, that misconception can become especially expensive. Here’s what you need to know about the taxes for each type of asset that you might inherit:

Asset Type	Key Considerations
Taxable brokerage account	Review the cost basis, which may receive a step-up in basis at the original owner’s death, potentially reducing future capital gains taxes.
Traditional IRA or 401(k)	Determine whether you’re subject to required distribution rules under the SECURE Act, as inherited retirement accounts follow different tax rules than taxable investments.
Roth IRA	Qualified withdrawals are generally tax-free, but inherited Roth accounts may still have distribution deadlines.
Real estate	Confirm the property’s current market value, ownership structure and any ongoing expenses such as taxes, insurance or maintenance.
Business interest	Review governing agreements, valuation documents and any restrictions on ownership transfers or future sales.
Trust assets	Identify whether the trust is revocable or irrevocable, who controls distributions and whether assets remain inside the trust or pass directly to beneficiaries.
Cash and bank accounts	Verify beneficiary designations and decide how much should remain liquid for taxes, debt payments or near-term expenses.

Because the tax rules for inherited retirement accounts are complex, and vary depending on factors such as your relationship to the deceased and whether required minimum distributions apply, a thoughtful withdrawal strategy can make a substantial difference in how much of the inheritance you ultimately keep.

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Planning for the Future

Once you’ve accounted for taxes and understand what you’ve inherited, the next step is deciding how the assets fit into your financial plan. You may want to start by setting aside enough cash for any near-term expenses, taxes or planned purchases. From there, your investment strategy could reflect your time horizon and long-term goals, rather than the emotions that often accompany a large inheritance.

A financial advisor can help you build a tax plan. Speak with an advisor today.

While a $5 million estate is generally below the current federal estate tax exemption, some states impose their own estate or inheritance taxes with much lower thresholds. Depending on where you live and where inherited assets are located, those rules may influence future planning decisions.

The goal isn’t simply to invest the inheritance; it’s to organize it into a coordinated strategy that supports your priorities while accounting for taxes, liquidity, long-term wealth preservation and more. Working with a financial advisor and tax professional can help you coordinate complex assets, reduce taxes and build a strategy that preserves your inheritance for years to come.