April is Financial Literacy Month, and at Rowhouse Financial Partners, we believe it is one of our responsibilities as advisors to serve as an educational resource for our clients. An often complex aspect of personal finance involves inheritance and matters that affect beneficiaries.
In 2025, more Americans than ever will inherit wealth compared to previous generations. According to a Citizens Bank survey, 72% of Americans don’t feel confident managing a financial windfall. If you’ve recently inherited wealth—whether from a family estate, retirement account, or other assets—you may find yourself in uncharted territory without a clear roadmap.
We are CPAs and tax-focused financial advisors who have assisted numerous beneficiaries in making informed decisions to protect and grow their inheritances. Below are essential tips to help you manage your newfound assets wisely.
1. Understand Your Inheritance
It turns out that not all inheritances are the same. You could receive cash, real estate, stocks, a retirement account, or a combination of these assets as part of your inheritance. Each scenario carries different tax implications and regulations.
- Inherited retirement accounts (IRAs, 401(k)s): You might have to take required minimum distributions (RMDs) depending on the account type. The SECURE Act also changed the distribution rules for inherited IRAs—most non-spousal beneficiaries are required to withdraw all funds within 10 years.
- Stocks and investments: You may receive a “step-up in basis,” which reduces capital gains taxes when selling inherited stocks or property.
- Real estate: Consider financial and tax factors to determine whether to keep, sell, or rent the property.
- Life insurance: Typically, the proceeds from life insurance policies are tax-free, but it is important to consider how to wisely invest or utilize these funds.
2. Plan for Taxes
As a financial planning firm specializing in taxes, we understand that inheritances can result in unforeseen tax liabilities. Advisors knowledgeable about the tax code can help you minimize unnecessary taxes.
- Estate taxes: While most estates avoid federal estate taxes (which only apply to estates exceeding $13.99 million in 2025[1]), some states have lower thresholds. Maryland is one of the few states with an inheritance tax, so it's important to understand your responsibilities based on your residence.
- Income taxes on inherited IRAs: Withdrawals are taxed as income when inheriting a traditional IRA. Consider spreading out withdrawals over time to minimize the tax impact.
- Capital gains taxes: When you sell inherited assets such as stocks or real estate, you will incur taxes on any appreciation from the stepped-up value.
3. Avoid Common Pitfalls
Receiving an inheritance can be life-changing, but it may disappear quickly without proper planning. Here are some ways we help clients manage their newfound resources to avoid pitfalls, ensuring that their financial outlook ideally improves over the long term.
- Overspending: It’s tempting to splurge, but an inheritance should be treated as a long-term financial resource. Keep your eyes on your long-term goals rather than short-term temptations.
- Neglecting financial planning: Your wealth may not endure without a solid strategy. Collaborate with a financial advisor to develop a plan for saving, investing, and managing taxes.
- Failing to update your estate plan: If your financial situation has changed, it’s important to revise your will, beneficiaries, and estate documents to reflect your new wealth.
4. Invest Wisely
Inheriting additional assets can also create a significant opportunity to expand your net worth through strategic investments.
- Diversify your assets: Don’t put all your money in one place—spread investments across stocks, bonds, real estate, and other assets. We help clients determine the right investment mix for their situation.
- Consider the long-term: If immediate access to the funds is not essential, prioritize growth-oriented investments for future financial security.
- Collaborate with a professional: A financial advisor can help develop a customized investment plan tailored to your goals and risk tolerance.
5. Build a Legacy
Many view inheritance as a means to create or bolster generational wealth for themselves and their loved ones. Here are some strategies to consider for broadening that impact.
- Establish a charitable giving plan: Donating thoughtfully can support the causes you care about while offering tax benefits.
- Consider establishing a trust: Trusts can safeguard your wealth for future generations and allow you to control distributions.
- Promote financial literacy: If you have children or grandchildren, take this opportunity to teach them about responsible money management.
Inheriting wealth carries significant responsibilities, and making informed financial decisions can help preserve your legacy. A combination of effective tax planning, disciplined investing, and professional guidance can help you maximize your inheritance.
If you need personalized advice on managing an inheritance, let’s talk. Please feel free to reach out to arrange a meeting.
1IRS.gov
Diversification does not assure or guarantee better performance/profit and cannot eliminate the risk of investment losses in declining markets. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Past performance is not a guarantee of future results. The strategies mentioned may not be appropriate for all investors. Please consult your financial and/or tax advisor(s) to determine a strategy that works best for you.