How do you treat an inheritance?

[retiredguy]

I currently have an inheritance of about $1 million entered as an additional input. Do I put that in as miscellaneous income with 0% taxable? Or do I put in as tax free savings? or what?

[jimr]

The best way to model this in the planner will depend on the exact details of the situation.

In general, the most straightforward way to handle an inheritance is to create a one-time additional inputs "Savings" cash flow into the appropriate portfolio type (eg taxable, tax deferred, tax free) with the amount set to the net amount after any fees or taxes are deducted.

If the proceeds from the inheritance will go into the taxable portfolio, then it'd probably make sense to use a "Taxable Savings" cash flow in additional inputs.

If the inheritance includes an IRA, the rules for distributions can get pretty complicated and in this case, finding a professional to assist might be the best bet.

[retiredguy]

Thanks very much for the quick reply! One more follow-up question:

Then what would be the appropriate portfolio type? Is it tax free because the inheritance itself is too small for the estate tax to apply? Or is it taxable because any income it generates is taxable?

[retiredguy]

Now that I reread, you already answered this question. Call it "taxable savings" Disregard!

[jimr]

Based on what you've described, that seems about right to me. Good luck! - Jim