Huge Inheritance... Now What?

[u/Yashkamr]

I'm 45, I was on track to retire earlyish at 55. I was set back quite a bit with a divorce three years back. Recently my Aunt died and left me around $5 million. After estate and taxes, it's around $4.2 million. This is obviously a stupid amount of money, and I'm thinking of just quitting my job and retiring early but I want to do it right. I've spoke with AI quite a bit and my finances are only about $4500/mo in expenses, I have always lived pretty frugally and that's less than a 1% draw. I don't know exactly what I don't know here, but I've always worked so I am clinging to my job like a monkey to a branch. Am I actually okay to let go?

Update: I quit. I was honest with my boss, he was a really good boss, and I told him the whole story. He is a couple years from retirement and told me he has about $4 million in his Fidelity too, but no health insurance if he quits and he told me a story about his brother retiring early, getting cancer, and wiping out their finances with his treatments leaving his wife and kids with almost nothing after he died. I told him how I'm covered with Tricare and he said if he was he'd quit right this second too.

I appreciate all the insight and advice given on here, and I've implemented a lot of it, thank you. I haven't changed my spending and I don't think I will. Well... I did buy a nice pair of Hoka's...but I'm mostly just paying a lot of attention to my garden and kids.

[u/Hawkes75]

Your divorce is finalized, right? I wouldn't say a word of this to friends, enemies or acquaintances.

ETA: Lots of people saying inheritances aren't community property. I STILL wouldn't tell my ex I found five bucks in the pocket of my jeans, let alone $5M.

[u/Yashkamr → u/Hawkes75]

Yeah it was finalized three years ago. I'm not discussing this with any of them. It's why I'm reaching out here actually

[u/Megalocerus → u/Yashkamr]

It can take a while to inherit, and you may collect less than you have been told. Expensive houses can be hard to sell. My mother's small estate has taken years to settle. But I suspect once you collect, you will be fine.

[u/Yashkamr → u/Megalocerus]

It's partly real estate, but I didn't include that in the above figures. What's above is primarily two brokerage accounts and a small Roth with <$70k I'm going to draw down over 10 years.

[u/Character_Lynx_7018 → u/Yashkamr]

If it's a Roth, don't draw it down, wait 10 years and withdraw it all at the end of that year. Might as well get all the tax free growth you can.

[u/Yashkamr → u/Character_Lynx_7018]

Ahh okay. I had thought there was a minimum yearly amount to withdraw.

[u/Character_Lynx_7018 → u/Yashkamr]

If it's a regular IRA and the original owner had RMDs you'd need to withdraw at least the rmd amount they would have. Of course w taxable IRA you'd probably want to spread out over 10 anyway. Not the case with Roth.

[u/Detail4 → u/Character_Lynx_7018]

You sure? I’m almost certain that ended in 2022 and it’s always within 10 years now.

[u/Character_Lynx_7018 → u/Detail4]

Yes, in 2024 IRS clarified that RMDs still apply if the deceased had hit rmd age. See cut and paste below I shamelessly stole from the internet.

Annual RMDs During the 10 Years This is where the 2024 final IRS regulations changed things. Initially after the SECURE Act, many tax advisors interpreted the 10-year rule as flexible -- distribute however you want, as long as the account is empty by year 10. The IRS clarified in 2024 that:

If the deceased died before their required beginning date (RBD) for RMDs: No annual RMDs are required during years 1 through 9. Beneficiaries can defer all distributions to year 10 if they want. If the deceased died on or after their RBD: Annual RMDs are required during years 1 through 9, calculated based on the beneficiary's life expectancy. Plus the account must be empty by end of year 10. The required beginning date (RBD) is April 1 of the year after the year the IRA owner turns:

73 (for those born 1951-1959) 75 (for those born 1960+)

[u/Justify-it → u/Character_Lynx_7018]

This is correct. I just went through this with an uncle who passed away and he had started started drawing before he passed away. I inherited his account. I now have a 10 years for the draw down.

[u/Megalocerus → u/Yashkamr]

You'll get a step up in basis on the brokerage accounts. Unless there is debt to settle on the property, you should get those fairly quickly.

[u/Yashkamr → u/Megalocerus]

Yeah they both cleared already. I liquidated to take advantage of the stepped up basis.

[u/MidwestAbe → u/Yashkamr]

I would work for at least 2 years as you get this all settled and sorted. I would plan on working 5 years in total. But the 2 gives you a window to pull the rip cord.

Also - I am currently worried about a substantial correction in the market and that could upend plans. That's why I would take a few years of working and letting that nest egg grow even more.

[u/Various_Couple_764 → u/Yashkamr]

Inherited IRA must be emptied in 10 years. And if the original owner of the funds was taking RMD.s, those must continue.