When you first inherit money, it's important to:

• Take time to grieve and avoid making hasty decisions
• Understand the type and value of assets you've inherited such as stocks, bonds, real estate, business, or cash
• Consult with a financial advisor or tax professional
• Create a plan for the inheritance that aligns with your financial goals

As of September 2026, inherited money and property generally aren’t subject to federal income tax when received. However, taxes may apply in certain situations:

• State inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose inheritance taxes.

• Whether you owe tax generally depends on where the deceased person lived or owned property, your relationship to them, and applicable exemptions—not simply where you live.

• Income from inherited assets: Interest, dividends, and rental income generated by inherited assets are generally taxable.

• Inherited retirement accounts: Distributions from inherited traditional IRAs and traditional 401(k)s are generally subject to income tax, except for any nontaxable portion.

Sources: IRS and state inheritance tax overview.

Pennsylvania Inheritance Tax Rate

As of September 2026, Pennsylvania’s inheritance tax rates are generally 4.5% for transfers to children and other lineal heirs, 12% to siblings, and 15% to other nonexempt heirs.

Transfers to surviving spouses are taxed at 0%, as are transfers from a parent to a child age 21 or younger.

Pennsylvania treats son in laws or daughter in laws as if they are a child. As such, there is a 4.5% inheritance tax on assets that pass to the wife or widow and husband or widower of the descendant’s child.

There are exceptions when it comes to various charitable organizations, exempt institutions, and government entities.

Property owned jointly between spouses is exempt from the inheritance tax.

When considering how to invest inherited wealth, it is important to work with a financial professional to create a comprehensive plan aligned with your financial goals.

When looking how to invest the inheritance, you should consider:

• Assess your overall financial situation and goals
• Paying off high-interest debt
• Diversify your investments across different asset classes
• Consider low-cost index funds for long-term growth

When it comes to investing inheritance, the right choice will differ for each individual because each person’s situation is unique.

A young person may want to pay off debt with high interest rates, while an older person who lacks retirement savings, may want to invest in their retirement. Each situation should be assessed to create a personalized approach.