Getting an Inheritance Under $1,500? 9 Things You Should Do With the Money
Written by
Cindy Lamothe
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Chris Cluff
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Receiving a small inheritance shouldn’t be something you take lightly. It’s an amount that can help grow your wealth and set you up for financial success in the future.
“While inheriting a sum as small as $1,500 might seem insignificant, with the right strategy, this amount is enough to strive for greater financial stability,” said Andrew Pierce, attorney and CEO at LLC Attorney.
Here are some of the top things you should do immediately after receiving these funds.
Set Up an Emergency Fund
“The first thing to consider is setting aside a portion for an emergency fund, to provide for unpredicted financial needs,” Pierce said. “However, be cautious about the probable taxes on inherited amounts, depending on state laws and the deceased person’s tax situation, which could diminish your expected total.”
Pay Off High-Interest Debt
“I suggest using a portion of the inheritance to pay off any high-interest debt, such as credit card balances or personal loans, to save money on interest payments and improve your financial health,” said Michael Benoit, certified finance expert and founder of ContractorBond.
“This includes any outstanding student loans or car loans with high interest rates.”
Invest In a Roth IRA
“I have found it more profitable to consider opening or contributing to a Roth IRA,” Benoit said, “which offers tax-free growth and withdrawals in retirement, allowing you to save for the future while maximizing potential investment returns such as stocks, bonds, real estate and more.”
“This way, you can take advantage of tax benefits and grow your inheritance over time.”
Jonathan Feniak, general counsel at LLC Attorney, agrees.
“Don’t dismiss the potential power of an IRA either,” Feniak said. “With $1,500, you’re within the maximum annual contribution limit for many accounts and it could provide a solid foundation for your retirement savings.”
Open a High-Yield Savings Account
According to Feniak, you should consider investing the amount in a high-yield savings or money market account.
“The returns may not be phenomenal, but your capital will grow slowly and steadily.”
Pierce agrees this is a smart money move: “Investing in a high-yield savings account or a low-cost index fund is another intelligent approach to growing this amount.”
Start a Dividend Reinvestment Plan
“I also advise you to invest in dividend-paying stocks or exchange-traded funds and enroll in a dividend reinvestment plan to automatically reinvest dividends and compound your investment returns over time,” Benoit suggested.
“For instance, if you purchase $1,500 worth of shares with a 3% dividend yield, you can earn $45 in dividends per year and reinvest that amount to purchase more shares.”
Over time, he said, this compounding effect can significantly grow your inheritance.
Don’t Forget About Taxes
“Be aware of tax implications,” Feniak cautioned.
Depending on the size of the full estate, he said, you might owe inheritance tax (not applicable in all U.S. states).
“Consult with a professional to understand your tax obligations,” he said.
Rhett Stubbendeck, CEO and founder at Leverage Planning, said understanding tax implications is essential.
“At Leverage, we’ve helped clients like a woman who inherited $50,000, advising her to invest in tax-efficient options like Roth IRAs and municipal bonds,” he said. “This strategy not only helped shield her inheritance from heavy taxes but also set her up for gradual, sustained growth.”
That said, experts such as Melanie Musson, finance expert with Clearsurance, say you should not be obligated to pay taxes on a small inheritances.
“If estate taxes are required, they will come from the estate,” she said. “So, you should have the freedom to use your small inheritance to improve your life.”
While experts differ, your safest bet is to consult a tax expert before allocating any funds.
Consider Establishing an LLC
“Considering legal nuances, establishing a limited liability company might seem a bit of a reach with just $1,500,” Pierce said, “but, in a business-friendly state like Wyoming, it’s entirely feasible with a minimal initial investment thanks to cost-efficient LLC services available today.
“With a thought-through plan, LLCs can offer a promising return on investment and potential tax benefits. Don’t forget to get professional guidance during these processes, as they can be intricate.”
Diversify Your Investments
“Diversification is also crucial,” Stubbendeck said. “We often recommend real estate as a solid part of a diverse investment portfolio. I’ve seen clients use inheritance money as a down payment on a rental property, turning it into a continuous income source.”
Spend on Education
“Lastly, look into enhancing your skill set or enrolling in an educational course,” Pierce recommended.
He said it’s an indirect investment that can increase your earning potential down the line.
“Remember,” he said, “the key is to use this opportunity to make small, wise investments today for bigger returns tomorrow.”
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