I’m 46 years old, single and live paycheck to paycheck — but I’m about to inherit $650K from my mom who recently passed away. Where should I start investing first to build wealth?

Before investing your inheritance

A 46-year-old still has several working years left before retirement. Say, for example, she wants to retire at her full retirement age of 67 so she can receive 100% of her Social Security benefit. That means she’s planning to work another 20 years — and she still has some time to leverage the power of compound interest.

First, however, she’ll have to consider any potential tax liabilities. There’s no federal inheritance tax, but six states have imposed one, including Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania (though Iowa is phasing it out in 2025).

Inheritance tax is separate from estate tax, which is based on the total value of the deceased’s money and property. Inheritance tax is paid by the heir, while estate tax is paid by the estate of the deceased.

If she also inherits a traditional IRA from her mom, as a non-spousal beneficiary she’ll have to withdraw money based on whether the IRA owner passed before or after their required beginning date which is when their required minimum distributions (RMDs) would have started.

These RMDs will be taxed as income. If the traditional IRA has a high balance, she could end up paying a big chunk of tax. With brokerage accounts, she’ll also have to consider the tax implications of capital gains, dividends and interest payments.

Before she invests anything, she may want to use some of the inheritance to pay off any outstanding debts, like a student loan or credit card debt. She may also want to build an emergency fund with three to six months’ worth of living expenses in an easily accessible high yield savings account. If she has a mortgage, it’s her call whether she wants to pay it off or pay it down. Some people would prefer to get rid of their mortgage debt, while others may prefer to invest that money for a higher return.

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Options for investing your inheritance

Once she’s paid off any taxes and debts, she may want to start investing that money in stocks, bonds, ETFs and alternative investments, either through a financial planner or a brokerage account. If she’s planning to invest a large amount of money, she may want to invest over a period of time using dollar-cost averaging. She may also want to look at ways to diversify her portfolio with different investments and different levels of risk.

If she has a high risk tolerance, she could consider some higher-risk strategies, like short selling — which is essentially like betting against a stock.

If she decides she wants to retire earlier than planned, then she might want to opt for lower-risk investments. Otherwise, if they lose value to the whims of the market, her portfolio won’t have as much time to recover.

If she inherits other retirement accounts from her mom, she can’t roll those over into her own retirement accounts (technically, it isn’t ‘earned’ income). However, if she was already putting aside a portion of her paycheck into an employer-sponsored 401(k), she may be able to increase that amount once she’s reduced spending in other areas, like paying off her debts.

All of this can be overwhelming for someone grieving the death of a family member — so it may not be the best time to start making life-altering financial decisions. In the meantime, she could park her inheritance in more than one federally insured bank or credit unit, which insures accounts up to $250,000 per depositor (so she’ll want to spread her money around). And she may want to seek advice from a financial advisor to help her navigate her options with this newfound wealth.