How Much Is the Average Inheritance? It’s More Than You Might Think

The average inheritance for American households is $46,200, according to the Federal Reserve. This number is as high as it is because of the large inheritances passed down by wealthy families to their heirs.

So, what should you do with an inheritance? And what do you need to know about the related taxes?

Key Takeaways

• Make good use of an inheritance by paying down high-interest debt and building an emergency fund with six to 12 months of savings.
• Another good use of inherited money is boosting your retirement savings. This is a real opportunity to increase your retirement contributions. So take this opportunity to bolster your long-term investments.
• Paying to go back to school or for a down payment for a house are other smart ways to spend your inheritance money. Both are savvy ways to invest in yourself and your future.

Pay Down Debt and Build an Emergency Fund

Give yourself a savings cushion by using your inheritance to fund an emergency fund. You’ll also want to pay down any debt that carries a high-interest rate.

Daniel Masuda Lehrman, a certified financial planner and owner of Masuda Lehrman Wealth, recommends a cash inheritance be used to pay off high-interest deby to to beef up your emergency funds. He recommends keeping 6 to 12 months’ worth of expenses in a high-yield savings account.

“Your emergency fund is your life preserver as you set sail on your retirement journey,” said Lehrman. “It not only helps you sleep better through volatile times, but it prevents you from taking withdrawals from your investments while the market is down.”

Bolster Retirement Savings

Putting aside money for the future is another good use of your inheritance, for instance, consider adding to your retirement savings.

“Once your cash reserve is solid and that high-interest debt is behind you, think about investing,” advises Brandon Gibson, a wealth manager at Gibson Wealth Management.

Gibson recommends considering a Roth IRA. “Since the money grows tax-free, you typically want to invest it in something with long-term growth potential—usually a diversified mix of global stocks. The earlier you start, the more time that money has to grow.”

Treat Yourself to Something Special

You can have some fun with your inheritance, once all the essential bases are covered. You might take the time to treat yourself to a special vacation or purchase, or even just a night out. Do it all in honor of the loved one who has passed away.

“After paying off high-interest rate debt, I would recommend earmarking a few thousand for a vacation or for buying something special,” says Chris Diodato, a certified financial planner and founder of WELLth Financial Planning.

He says that honoring your loved ones should be a consideration, apart from the financial concerns. “This helps, in my opinion, honor the decedent by creating a special memory or having a special asset that can always be associated with them. At the same time, it lets the inheritor be human and enjoy some of the funds.”

Note

In 2025, there is no estate tax on estates of $13.99 million or less. This is an increase from $13.61 million in 2024.

Honor Your Loved One’s Wishes

Use your inheritance to give to causes close to a loved one’s heart. You’ll feel closer to them by doing so.

“Consider what would honor the relative. Were they all about education? They might love it if you invested this into a 529 account for the next generation. Did they love a particular hiking trail? It might honor them to place a bench with a commemorative plaque remembering them. Did they have a soft spot for people down on their luck? Consider donating to the local food bank,” says Samantha Mockford, a certified financial planner at Citrine Capital Advisors.

Invest in Yourself

Use the inherited money to do something you always wanted to do but thought you couldn’t afford.

“Consider using it to build a better future for yourself, potentially turning an inheritance into a life-changing event,” says Noah Damsky, a principal at Marina Wealth Advisors. “You can invest in yourself by going back to school, saving for a down payment on a home, or planning a wedding.”

Deal With Taxes

Most people won’t have to deal with a federal estate tax.

“The average American also does not need to worry about federal inheritance/estate taxes, as there is an exemption for estates valued at less than $13.99 million,” Diodato advises. “Some individual states do, however, have their own inheritance taxes.”

States with inheritance taxes include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.  These states have inheritance taxes ranging from 1% to 16%. If you live in one of these states and get a big inheritance, you may wish to reach out to a financial advisor or a tax advisor for advice.

The Bottom Line

If you receive an inheritance when a loved one passes away, you’ll want to use the money wisely. Begin by looking at what is not working in your finances, such as paying high-interest debt. This inherited money is your opportunity to clear out that debt once and for all.

You’ll also want to take a look at your savings. If there is not much there, the next step is setting aside six to 12 months of savings in an emergency fund. Next, think about the future and your retirement. Your inheritance allows you to jumpstart your retirement savings, so put aside a healthy amount for your retirement.

Doing something special with the money, such as a vacation or even a purchase, is a nice thing to consider, and so is doing something to honor the person who passed away by donating to causes they held dear.