Where you put inheritance money depends on when you’ll need it: a high-yield savings or money market account for cash you may use soon, certificates of deposit for money you can lock up for a defined period, a taxable brokerage account for long-term growth, and — indirectly, through your earned income — your own IRA for retirement. The inheritance itself is generally not federal taxable income, so the full amount is yours to place.1Internal Revenue Service. Is the Inheritance I Received Taxable? The federal estate tax only applies to estates above $15,000,000 in 2026, and that tax is paid by the estate before you receive anything.2Internal Revenue Service. Estate Tax Five states impose their own inheritance tax on beneficiaries, with rates roughly 1% to 16% depending on your relationship to the person who died; close relatives are usually exempt or taxed at the lowest rates.
One tax rule matters before you place anything: if you inherited stocks, funds, or real estate rather than cash, your cost basis resets to the fair market value on the date of death under Internal Revenue Code Section 1014. A stock your parent bought at $10 and worth $150 at death has a $150 basis in your hands. Gains on inherited assets also count as long-term regardless of how long you’ve held them, so any later sale is taxed at the long-term capital gains rate of 0%, 15%, or 20%.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses Get the date-of-death valuation documented before you sell.
High-Yield Savings and Money Market Accounts
For money you may need within a year, or that you simply aren’t ready to invest, a high-yield savings account or money market account keeps things liquid and earning variable interest. Money market accounts sometimes add check-writing or a debit card, which helps if you’ll draw on the funds periodically.
FDIC coverage at a bank runs $250,000 per depositor, per bank, per ownership category.4eCFR. 12 CFR Part 330 – Deposit Insurance Coverage Credit unions offer the same protection through the National Credit Union Share Insurance Fund.5National Credit Union Administration. Share Insurance Coverage If your inheritance is larger than $250,000, a single account leaves the excess uninsured. You can either open accounts at several banks or use a brokerage cash sweep program that spreads deposits across a network of partner banks, each carrying its own $250,000 in coverage.6FDIC. Your Insured Deposits Some sweep programs push total coverage into the millions.
Opening a bank account requires your Social Security number, a government-issued photo ID, and your residential address.7HelpWithMyBank.gov. What Type(s) of ID Do I Need to Open a Bank Account? An estate check can be deposited directly. For very large amounts, a wire transfer settles faster but usually costs $15 to $30.
Certificates of Deposit
A CD locks money at a fixed rate for a set term, typically three months to five years, with the same $250,000 FDIC coverage. You know what you’ll earn, and the tradeoff is that you agree not to touch the money until it matures.
Federal rules require at least seven days’ simple interest as an early withdrawal penalty, but most banks charge 90 to 180 days of interest depending on term length. When a CD matures, you generally get a ten-day window to withdraw or move the funds before the bank rolls it into a new term.8eCFR. 12 CFR 204.2 – Definitions
Building a CD Ladder
If you want the certainty of CDs without locking every dollar away for years, split the money across staggered maturities. Divide $100,000 into five equal pieces and buy 1-year, 2-year, 3-year, 4-year, and 5-year CDs. As each matures, you either use the cash or roll it into a new 5-year CD. After the first year, something matures annually, and the money you leave in place still earns the longer-term rates.
Individual Brokerage Accounts
For long-term growth through stocks, bonds, and funds, a taxable brokerage account is the standard placement. Opening one takes your name, tax ID number, occupation, and a suitability review of your goals and risk tolerance. Deposited cash usually sits in a sweep account earning modest interest until you invest it. Transfers from a linked bank account clear within one to three business days.
If you inherited securities instead of cash, this is where those holdings will live, and the stepped-up basis becomes the point. You owe capital gains tax only on growth above the date-of-death value, not on the full sale price. Inherit stock worth $200,000 at death, sell at $205,000, and the taxable gain is $5,000. Selling shortly after inheriting often produces little or no gain at all.
Funding Your Own IRA
You can channel inheritance money into a Traditional or Roth IRA, but with a mechanical catch. IRA contributions must come from earned income like wages or self-employment.9Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts Inheritance isn’t earned income, so what you’re really doing is using the inheritance to cover living expenses and freeing up your paycheck to fund the IRA.
For 2026, the IRA contribution limit is $7,500, or $8,600 if you’re 50 or older (the $7,500 base plus a $1,100 catch-up).10Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Roth IRAs also have income limits that can reduce or eliminate eligibility. Contributions for a tax year are due by the April 15 filing deadline.
Over-contributing, or contributing without enough earned income to back it, triggers a 6% excise tax on the excess for every year it stays in the account.11Internal Revenue Service. IRA Year-End Reminders Pulling the excess plus any earnings on it before your filing deadline (including extensions) avoids the penalty.
If You Inherited a Retirement Account
Inheriting someone’s IRA or 401(k) is a different situation from any of the above. You don’t get to choose where to “put” those funds in the same way — the account comes with distribution rules tied to your relationship with the deceased.
A surviving spouse has the most flexibility, including rolling the inherited IRA into their own IRA and treating it as if it had always been theirs, or keeping it as an inherited IRA with distributions based on their life expectancy.
Most non-spouse beneficiaries of someone who died in 2020 or later must empty the account by December 31 of the year containing the tenth anniversary of the owner’s death.12Internal Revenue Service. Required Minimum Distributions for IRA Beneficiaries If the original owner had already started required minimum distributions, you also have to take annual distributions during that 10-year window rather than waiting until year ten. Missing a required annual distribution triggers a steep penalty. A narrow group of “eligible designated beneficiaries” — minor children of the deceased until majority, disabled or chronically ill individuals, and beneficiaries not more than ten years younger than the deceased — can stretch distributions over their own life expectancy instead.
Every dollar taken from an inherited Traditional IRA is ordinary taxable income in the year received. Qualified withdrawals from an inherited Roth IRA are tax-free, though the distribution timeline still applies.
Add Beneficiaries So the Money Passes Cleanly
Once your inheritance is placed, decide how each account would transfer if something happened to you. Bank accounts, brokerage accounts, and CDs can carry Transfer on Death (TOD) or Payable on Death (POD) designations that send the funds directly to a named person without probate. The beneficiary presents a death certificate and ID to the institution and collects the assets.
Beneficiary designations override your will. If your will leaves everything to your sister but a brokerage account still names an ex-spouse as the TOD beneficiary, the ex-spouse gets the brokerage account. Update these designations after a marriage, divorce, birth, or death in the family. The change takes about five minutes per account, and it’s where estate plans most often fall apart.