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HUGE $3 MILLION DOLLAR INHERITANCE | WHATS NEXT
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If you win the lottery or inherit wealth, here is how you should spend and invest it
Someone on Reddit recently inherited 7000 shares of Apple stock worth approximately $3.325 million. What would you do with all that money? How would you invest it? Would you invest in real estate? Stocks? How much would you pay in taxes? I've put together this general guide on how I would invest several million dollars if I inherited a large sum of money.
In 2003 the Redditor’s grandfather put his college fund into Apple stock, that year, apple closed at around $1.50, and right now it’s obviously several hundred dollars per share, several million dollars in appreciation, that means you’re going to have to pay quite a lot in taxes right? Interestingly enough, you will not because The Step Up In Basis. With this rule, you don’t have to pay taxes on the difference between what the real cost basis was, and what you inherited it at which then becomes your new cost basis. When you inherit the money, you are also automatically given the long term capitals gains tax rate.
Hypothetically, if you decide to sell the stock the moment of passing, assuming zero price growth, you will pay minimal taxes on from sale. However, if you wait to sell the stocks and they appreciate in value, then you have to pay long term capital gains taxes. You would pay 0% on your first $40k, 15% for $41k to $441,450, and 20% for anything above that (depending on your taxable income). You don't personally need to know this tax information, but when you hire a CPA and an estate and trust attorney (VERY important), these are great talking points to discuss.
After inheriting the money, I would first sell those shares because you should never risk that much money in any single company, no matter how great it is (even though AAPL is my favorite stock). Now that I have 3 million in cash, here's how I would invest it.
First, I would pay off my debts. Credit card loans, student loans, auto loans, personal loans, etc. I wouldn't necessarily pay off my house unless my mortgage was in excess of 4%. Otherwise, I would continue investing in the market.
Second, put that money in a high yield savings account that generates some interest so you don't lose money to inflation. Make sure not to exceed the FDIC limit of $250,000. You'll need to manage multiple accounts but it's worth it if you want to minimize your risk. If you want to have that money invested soon, you can keep it in a single bank account short term but be careful not to let any single brokerage account exceed $500,000 in stocks because that goes over the SIPC limit (500k stock + $250k cash).
Third, I would put 30% (roughly $1 million) into a low cost dividend ETF like VYM which generates around 3.6% dividend yield (at this current moment) which will give you a base income of $36,000. From this moment forward, you will almost certainly never drop below this income and you've secured a middle class lifestyle without needing an actual job. Not bad!
Fourth, I would put another 30% (another $1 million) into either a growth ETF like QQQ or even better, a broad market ETF like VTI which tracks the total US stock market. Chances are 30 years from now, you'll be in a better position than you are today. If you can hold off on needing this money, consider putting this in a retirement account. Make sure to ask your financial planners about the backdoor Roth IRA, or the mega backdoor Roth IRA options just in case.
Fifth, I would put another million dollars into real estate. If you like passive real estate investing, considering downloading Fundrise and using that app to do the investing for you, I highly recommend them. If you like slightly more active real estate investing, I'd buy REIT ETFs / individual stocks. Lastly, if you like very active real estate investing, buy physical properties and turn them into rentals for extra cash flow.
Sixth, I would save 10% of your money as cash to ride out bad economic conditions so you don't have to sell your house or your stocks. Give some to charity or your parents, and you're set for life.
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
Someone on Reddit recently inherited 7000 shares of Apple stock worth approximately $3.325 million. What would you do with all that money? How would you invest it? Would you invest in real estate? Stocks? How much would you pay in taxes? I've put together this general guide on how I would invest several million dollars if I inherited a large sum of money.
In 2003 the Redditor’s grandfather put his college fund into Apple stock, that year, apple closed at around $1.50, and right now it’s obviously several hundred dollars per share, several million dollars in appreciation, that means you’re going to have to pay quite a lot in taxes right? Interestingly enough, you will not because The Step Up In Basis. With this rule, you don’t have to pay taxes on the difference between what the real cost basis was, and what you inherited it at which then becomes your new cost basis. When you inherit the money, you are also automatically given the long term capitals gains tax rate.
Hypothetically, if you decide to sell the stock the moment of passing, assuming zero price growth, you will pay minimal taxes on from sale. However, if you wait to sell the stocks and they appreciate in value, then you have to pay long term capital gains taxes. You would pay 0% on your first $40k, 15% for $41k to $441,450, and 20% for anything above that (depending on your taxable income). You don't personally need to know this tax information, but when you hire a CPA and an estate and trust attorney (VERY important), these are great talking points to discuss.
After inheriting the money, I would first sell those shares because you should never risk that much money in any single company, no matter how great it is (even though AAPL is my favorite stock). Now that I have 3 million in cash, here's how I would invest it.
First, I would pay off my debts. Credit card loans, student loans, auto loans, personal loans, etc. I wouldn't necessarily pay off my house unless my mortgage was in excess of 4%. Otherwise, I would continue investing in the market.
Second, put that money in a high yield savings account that generates some interest so you don't lose money to inflation. Make sure not to exceed the FDIC limit of $250,000. You'll need to manage multiple accounts but it's worth it if you want to minimize your risk. If you want to have that money invested soon, you can keep it in a single bank account short term but be careful not to let any single brokerage account exceed $500,000 in stocks because that goes over the SIPC limit (500k stock + $250k cash).
Third, I would put 30% (roughly $1 million) into a low cost dividend ETF like VYM which generates around 3.6% dividend yield (at this current moment) which will give you a base income of $36,000. From this moment forward, you will almost certainly never drop below this income and you've secured a middle class lifestyle without needing an actual job. Not bad!
Fourth, I would put another 30% (another $1 million) into either a growth ETF like QQQ or even better, a broad market ETF like VTI which tracks the total US stock market. Chances are 30 years from now, you'll be in a better position than you are today. If you can hold off on needing this money, consider putting this in a retirement account. Make sure to ask your financial planners about the backdoor Roth IRA, or the mega backdoor Roth IRA options just in case.
Fifth, I would put another million dollars into real estate. If you like passive real estate investing, considering downloading Fundrise and using that app to do the investing for you, I highly recommend them. If you like slightly more active real estate investing, I'd buy REIT ETFs / individual stocks. Lastly, if you like very active real estate investing, buy physical properties and turn them into rentals for extra cash flow.
Sixth, I would save 10% of your money as cash to ride out bad economic conditions so you don't have to sell your house or your stocks. Give some to charity or your parents, and you're set for life.
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
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