You Just Inherited $1 Million. Now what?

Here's What You Need to Know

Receiving a significant inheritance is one of the most financially meaningful and emotionally complex events a person can go through. You're likely navigating grief while also facing questions you've never had to ask before. How do I handle this much money? Will I owe a lot in taxes? What decisions do I need to make right now and what can wait?

What About Federal Estate Taxes?

One of the biggest misconceptions around inheritance is that receiving money automatically means owing taxes. For most people, that is not the case, at least not immediately.

The federal estate tax is paid by the estate of the person who passed away, not by you as the recipient. As of 2026, the federal estate tax exemption is $15 million per individual, and $30 million for married couples. This was made permanent under the One Big Beautiful Bill Act signed in 2025. Unless the estate was very large, federal Estate taxes likely aren't something you need to worry about.

What you may encounter, however, are income taxes on the assets you inherit, and how much you owe depends significantly on what you inherited and what type of account it came from. That distinction matters more than most people realize.

Inherited IRA’s: The 10-Year Rule and Why it Matters

If you inherited a Traditional IRA or 401k, you've inherited what the IRS calls a pre-tax account. The original owner puts money in deferring taxes, and the IRS is still expecting to collect. Every dollar you withdraw will be taxed as ordinary income in the year you take it.  

Under the SECURE Act, most non spouse beneficiaries must fully distribute an inherited IRA within 10 years of the original owner's death. If the original owner had already begun taking RMD’s or Required Minimum Distributions before they passed, you may also be required to take annual distributions during years one through 9 of that window.  

Here's why the timing matters. If you inherit a $1 million IRA and withdraw the entire amount in one year, you could be pushed into a significantly higher tax bracket, potentially paying 32% or more on a large portion of that income. If instead you spread the withdrawals strategically out across the full 10-year window, aligning them with lower income years, you may be able to keep much more of what you inherited.

This is a great example of how timing affects taxes. Not just how much you have, but when and how to access it.

The Stepped-Up Basis: One of The Most Valuable Tax Benefits Most People Have Never Heard Of

If you inherited assets held in a taxable brokerage account, stocks, bonds, mutual funds, or similar investments, you’ll likely receive something called a stepped-up cost basis. This is worth understanding because it can mean the difference between a significant tax bill and none at all.

Here's how it works. When you inherit an asset, the IRS resets your cost basis to the fair market value of the asset on the date of the original owner's death. If your parent bought $50,000 worth of stock decades ago and it had grown to $400,000 by the time they passed, your cost basis is $400,000. Sell it the same day and you owe nothing in capital gains on a lifetime of growth.

This is one of the most powerful and most overlooked tax advantages in the entire tax code. It doesn't apply to assets inside retirement accounts like traditional IRA's or 401k’s. However, for assets held in taxable brokerage accounts, real estate, and similar property, the tax savings can be substantial.

What if I Inherited Real Estate?

Real estate receives the same stepped-up basis treatment. Your cost basis is reset to the property's fair market value at the time of inheritance. If you sell the property shortly after inheriting it and the value hasn't changed significantly, you may owe little to nothing in capital gains.

If you decide to keep it and rent it, the tax picture becomes more layered. Rental income is taxable, and there are depreciation rules to navigate. If the property has appreciated significantly before you eventually sell, you'll want to plan around the capital gains ahead of time.

An inheritance of this size doesn't just change your bank balance. It can change your entire financial picture, your tax bracket, your estate plan, your retirement timeline, and even your Medicare premiums. Each of these pieces are connected, and a decision made in one area will often affect the others.

The Most Important Step: Building a Coordinated Plan

This is exactly why coordination matters so much. Managing an inherited IRA, for example, isn't just about picking investments. It's about deciding how much to withdraw each year, in what order relative to your other income, and whether a partial Roth conversion makes sense given your specific situation. A good plan isn’t about moving fast. It's about informed decisions with a clear understanding of what the options are, what the trade-offs look like, and what your goals are over the long term.

At Oak Summit Wealth Management, we bring together expertise as a Chartered Financial Analyst® Charter holder, CERTIFIED FINANCIAL PLANNER®, and IRS Enrolled Agent (EA), to help clients navigate these transitions with patience, clarity and a plan built for you and your life.

If you recently received an inheritance and aren't sure where to start, we're here to help. Schedule a free consultation today.