I inherited a portfolio. What are these things, and what do I do?
A parent is gone, and an account with their name on it is now yours — stocks you didn’t pick, bonds you can’t read, some cash. Before you do the one thing everyone’s first instinct says to do, there’s a question worth more than the balance.
You are not in trouble today.
Start here, because it’s the question underneath the panic: no, you don’t owe tax just for inheriting this. Inheriting an account isn’t income. There’s no federal tax on receiving it, and most states don’t tax it either — a handful still levy an inheritance tax, so it’s worth a quick check on where you live. Either way, the accounts aren’t going anywhere this week. The rules that matter unfold over years, not days. You have time to read this.
This is also a different decision than turning a check into a plan. If what you received was already cash — the estate sold everything and deposited the money — that’s the windfall Moment, and it sorts down the order of operations like any other dollar. This lesson is about the harder case: the money is still inside an account, invested, with rules attached — and what you do before you touch it decides what you keep.
Read the wrapper before you touch anything.
An inherited account has two layers, and almost everyone reaches for the wrong one first. The wrapper is the kind of account it is — a taxable brokerage account, a Traditional IRA, a Roth. The holdings are what sits inside it — the stocks, the bonds, the cash. The holdings feel like the decision. They’re the second question. The wrapper comes first, because it alone sets your deadline, your tax bill, and whether undoing anything costs you.
The same stocks land in three different rule sets.
A portfolio of stocks, bonds, and cash can arrive in any of three accounts — and the account, not the holdings, decides your deadline, your tax bill, and whether undoing it costs anything. Read the wrapper first.
| Wrapper → | TaxableA taxable brokerage account | Pre-tax retirementAn inherited Traditional IRA or 401(k) | Roth retirementAn inherited Roth IRA |
|---|---|---|---|
| Clock | No deadline — hold it as long as you like. | Empty within 10 years (maybe a set amount each year too). | Empty within 10 years — but with no yearly minimum. |
| Tax | You inherit the gains tax-free — the cost basis steps up to today’s value. | Fully taxed on the way out — at the same rates as your wages. | Nothing is taxed — not while it grows, not when you take it out. |
| Selling | Sell soon and you owe tax only on gains since you inherited — usually very little. | Buying and selling inside is tax-free — only withdrawals are taxed. | Trade freely, let it compound, and take it near the deadline. |
| At a glance | The step-up gift | Taxable · on a clock | Tax-free |
So when the custodian asks how you’d like to receive the funds, the honest answer is: not yet. “Send me a check” can turn an inherited retirement account into a taxed, can’t-undo distribution before you knew you had a choice. You’re allowed to slow the call down to one question of your own — what kind of account is this? — and decide nothing else until you have the answer.
Don’t authorize a withdrawal, a check, or a “close the account” until you know the wrapper. For a retirement account, the safe move is a custodian-to-custodian transfer — the firm sends the money straight into an inherited IRA in your name (a separate account opened just to receive it), never a check made out to you. And unlike the original owner, a non-spouse heir can’t use the 60-day rollover window to undo a cashed check, so once it’s out, the tax can’t be put back.
The taxable account hides a gift.
If the wrapper is an ordinary Brokerage account, you’ve been handed something most heirs never hear about: Step-up basis. Normally, when you sell a stock you owe tax on its growth since it was bought. But an inherited holding’s cost resets to what it’s worth the day you inherit it — so all the growth that happened during your parent’s life is never taxed to you.
The built-up gain arrives already tax-free.
When you inherit stock in a taxable account, its cost basis resets to what it’s worth the day you inherit it. Every dollar it gained during your parent’s life lands in your hands with no tax attached.
of built-up gain on a $10,000 holding — gone from your tax bill the moment you inherit it.
This is exactly why the sell-it-all instinct is most expensive here, and not the way you’d think. Selling at or near the day you inherit is nearly free — the step-up protected the gain your parent built up, and any new gain since that day is usually small. The mistake is the opposite: panic-selling the holdings down at a market low, locking in a loss the step-up was quietly shielding. There’s no deadline on a taxable account and no tax bill waiting. The pressure you feel is grief, not the IRS.
A retirement account comes with a clock.
If the wrapper is a retirement account, the gift flips into a deadline. A non-spouse heir generally has to empty an inherited IRA within ten years, counted to the end of the tenth year after your parent’s death. The two kinds part ways on tax. An inherited Traditional IRA or 401(k) was never taxed, so every dollar you withdraw counts as ordinary income: taxed at the same rate as your paycheck, not the lower rate a taxable account gets, and with no step-up to soften it. Empty a large one in a single year and you can shove yourself into a higher Marginal tax bracket; spreading it across the ten years is usually the gentler path.
An inherited Roth IRA is the same ten-year clock with the tax turned off: withdrawals are tax-free, and with no yearly minimum to hit, you can let the whole balance compound untaxed and take it near the end. The clock is the catch; the tax-free growth is the consolation. (Depending on your parent’s age, a Traditional account may also require a calculated minimum withdrawal each year along the way — one more reason to confirm the specifics with the custodian or a tax pro rather than guess.)
The rules above are written for a child inheriting from a parent. A surviving spouse has more room: you can usually roll an inherited IRA into your own and treat it as if it were always yours, skipping the ten-year clock entirely. If that’s you, the deadline pressure mostly lifts — but the wrapper question still comes first.
The holdings are the second question.
Now — and only now — the stocks and bonds. Here’s the part that surprises people: once you know the wrapper, you can change what’s inside it without tripping the wrapper’s tax rules. Inside any IRA you can sell your parent’s holdings and rebuild the mix with no tax at all; the taxable event is taking money out, not trading within. You’re not stuck with the portfolio a parent built for their life instead of yours.
So don’t let it run on autopilot, and don’t dump it in a panic. Fold it into a plan you’d have chosen anyway — broad, low-cost, and left alone to grow (the investment vehicles guide shows what that looks like). The one thing not to do is leave it sitting as idle cash out of indecision: money that stays invested is the whole reason an inherited account is worth more than the number on the statement. If you want to see what keeping it invested actually becomes, the compound growth calculator draws it out over the years you have left.
One move this week.
The whole lesson collapses into a single question, asked before you move a dollar. Not “should I sell,” not “what do I buy” — those can wait.
Call the custodian and ask exactly what kind of account each one is — a taxable brokerage account, a Traditional IRA, or a Roth — and write the answer down. Not sure who to call? The custodian is the firm whose name is on the statements or letters — the brokerage or bank that holds the account. That one fact tells you whether you’re holding a gift with no deadline or a clock with a tax bill, and every other decision follows from it. Until you have it, the right answer to “how would you like to receive the funds” is simply: not yet.
What you inherited is an account type, not just a balance.
Strip away the grief and the unfamiliar stock names and an inherited portfolio is readable: a wrapper that sets the rules, and holdings you’re free to reshape inside it. Read the wrapper, protect the step-up, mind the ten-year clock, and let a parent’s money keep growing on your terms. None of it rewards moving fast.
- Inheriting an account isn’t taxable income — you’re not in trouble today, and you have time to decide.
- The wrapper (taxable, Traditional, Roth) sets your tax bill and your deadline; read it before you touch the holdings.
- A taxable account carries step-up basis — the built-up gain comes tax-free, so don’t panic-sell at a low.
- An inherited IRA empties within ten years; Traditional withdrawals are taxed, Roth ones are tax-free.
- Never take a check from a retirement account before knowing the wrapper — use a custodian-to-custodian transfer.