When a loved one passes away, the emotional weight is already immense. But if you also inherit money or property, you may find yourself dealing with a whole new set of financial challenges—ones that can be surprisingly costly if not handled carefully.
As a financial advisor who has helped many women through the emotional and financial transitions that come with inheritance, I see the same three tax-related mistakes again and again. These mistakes can create unnecessary stress and cost you tens of thousands of dollars. Let’s walk through how to avoid them.
Don’t Rush Withdrawals from Inherited Retirement Accounts
If you’ve inherited an IRA or other retirement account, tread carefully before making any withdrawals. Under the SECURE Act, most non-spouse beneficiaries now have to empty inherited IRAs within 10 years. But there are two critical caveats:
If the original owner had already started taking Required Minimum Distributions (RMDs), you may have to continue those annual distributions in addition to emptying the account within 10 years.
Missing a required withdrawal can trigger a 25% IRS penalty on the amount that should have been taken.
This rule surprises many beneficiaries, especially those still processing their grief. They either leave the account untouched—thinking they’re preserving it—or withdraw large sums at once, triggering a huge tax bill.
Smart Move: Work with a financial advisor or tax professional to create a withdrawal strategy that aligns with your financial goals while minimizing your tax burden. Sometimes spreading the withdrawals over 10 years can reduce your total tax liability.
Understand the Stepped-Up Basis Before Selling Investments
Another common mistake is selling appreciated stocks or real estate too soon—before the “step-up in basis” is properly recorded.
Here’s what that means: when you inherit investments (like stocks, mutual funds, or real estate), their cost basis typically “steps up” to the fair market value as of the decedent’s date of death. This means any capital gains that occurred during your loved one’s lifetime are essentially erased for tax purposes.
If you don’t wait for the step-up to be processed by your investment firm before selling, you could end up paying taxes on gains that should have been wiped clean.
Example:
Let’s say your mother bought Apple stock for $10,000, and it was worth $100,000 when she passed. If you sell right away before the cost basis is updated, you could owe taxes on a $90,000 gain. But with the step-up, your new cost basis is $100,000—so selling at $100,000 creates no capital gains tax.
Smart Move: Before selling any inherited investments, make sure your investment custodian has correctly updated the cost basis. Confirm this with written documentation, not just a verbal assurance.
Get Professional Tax Guidance Before Taking Action
Perhaps the most crucial—and most overlooked—step is coordinating with a tax professional before making any major financial moves. Inheriting assets often intersects with complex tax rules and timelines. And in the emotional fog of grief, it’s easy to make decisions that feel logical in the moment but end up being costly.
A 2022 Fidelity study found that 84% of women lack confidence when managing inherited wealth. That statistic doesn’t surprise me. Most women I work with are smart, capable, and accomplished—but the emotional and financial weight of inheritance can be paralyzing.
Especially if you’ve inherited a significant amount (over $500,000), the potential tax ramifications can be massive. Taxes on retirement accounts, investment gains, real estate transactions, and estate distributions all interact differently—and sometimes in unexpected ways.
Smart Move: Meet with a financial advisor and tax professional before withdrawing, selling, or reinvesting anything. They can help you build a plan that supports both your short-term needs and long-term goals.
Bonus Tips: What Else Should You Watch Out For?
Inheriting wealth touches more than just your bank account. Here are a few more things to consider:
- Inherited property (like a home) may also qualify for a step-up in basis—but rules vary by state and situation.
- Trusts or estate structures may place additional limits or protections on what you can do with inherited assets.
- If you’re also grieving a spouse, review your own estate plan, insurance policies, and retirement accounts to make sure they reflect your new reality.
You Don’t Have to Navigate This Alone
Navigating the tax rules after inheriting assets is hard—but you don’t have to go it alone. Working with a trusted advisor can help you feel more confident and empowered to make decisions that align with your values and goals.
If you’ve recently inherited assets and are feeling overwhelmed, I invite you to book a free 20-minute call with me. We’ll talk through your current situation and see if my services are a good fit for what you need right now.
Conclusion
Inheriting assets is often a bittersweet event—one that comes with deep emotions and big financial decisions. By avoiding these common tax mistakes, you can preserve more of your inheritance and give yourself the time and space you need to plan for your future.
Whether you’re managing an inherited IRA, rethinking your investment plan, or just trying to figure out what steps to take next, help is available. You don’t need to have all the answers. You just need someone to walk alongside you with the right questions and guidance.
Key Takeaways
- Most inherited IRAs must be emptied within 10 years—and may require annual distributions.
- Stepped-up cost basis can eliminate capital gains taxes, but only if properly processed before selling.
- A tax advisor can help you avoid costly missteps and develop a tax-efficient inheritance plan.
Sara Zuckerman, CFP®, CDFA® is the founder of Reset Financial Planning in Fort Collins, CO. Through virtual planning sessions, she partners with women nationwide who are navigating major life transitions, particularly divorce, inheritance and widowhood. Sara’s mission is to help women create a fresh financial start that aligns with their values and empowers them to move forward with confidence.
If you are interested in learning about how Reset Financial Planning can help you take charge of your finances as an independent woman, please contact us at or schedule a free 20-minute consultation.
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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Reset Financial Planning, LLC, and all rights are reserved.
