The key to making the most of the money is to put it somewhere to earn interest or to invest it – if you're comfortable with the risks associated with this. The main questions you should be thinking about are when you might need the money, how long you can put it away for, and what level of risk you are happy with.”
While carrying large amounts of cash isn't necessarily illegal, you may run into trouble if the authorities believe the cash is tied to illegal activity.
Contribute to Tax-Deferred Accounts
One of the most effective strategies for reducing taxes on a large sum of money is to utilize tax-deferred accounts like individual retirement accounts (IRAs) or employer-sponsored retirement plans such as a 401(k).
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance. The maximum coverage for each FDIC-insured account is $250,000.
You can deposit up to $10,000 cash before reporting it to the IRS. Lump sum or incremental deposits of more than $10,000 must be reported. Banks must report cash deposits of more than $10,000. Banks may also choose to report suspicious transactions like frequent large cash deposits.
If you find money, especially a significant amount, you should check your local laws or contact an attorney or the police. Many communities have local laws or ordinances governing what someone must do if they find cash and don't know who it belongs to. In some instances, state law will apply.
If you do make a gift over $15,000, you'll need to file tax Form 709 with the IRS. Even if you want to apply the $15,000 to your lifetime exemption, you'll need to file the form so the IRS can keep a running total of the amounts you're counting toward your lifetime exemption.
A “lump-sum payment” is defined as income in the form of a bonus or an amount paid in lieu of vacation or other leave time. The term does not include an employee's usual earnings or an amount paid as severance pay.
“If you're lucky enough to win the lottery, keep it quiet," says Rob Burnette, financial and investment adviser at Outlook Financial Center in Troy, Ohio. "Get organized and make a plan. Consider staying anonymous, if it's a possibility.”
An irrevocable trust, however, gives you greater asset protection. They protect lottery winnings and investments because the assets legally do not belong to you, and they benefit your family, as they are not subject to estate taxes.
Hire someone to invest your money in the markets, but also invest on your own. Investing your money allows you to make money with the money you have. A professional advisor will help you balance risk and reward—protecting your money while also using it to generate income and/or grow it over time.
Current tax law does not allow you to take a capital gains tax break based on your age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales, though this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
Take advantage of the lifetime gift tax exclusion
As mentioned earlier, the lifetime gift tax exclusion is $12.92 million in 2023. This means that you can give gifts up to $12.92 million over your lifetime without owing any gift tax. One penny over the exclusion makes it a taxable gift, but rarely will tax be owed.
Taxable Lawsuit Settlements
Any pre-judgment or post-judgment interest on settlement money is taxable and may influence taxes on some attorney fees. This also applies to punitive damages awarded in the case. The same can be said for any punitive damages awarded.
Paying down debt, investing the money or growing an emergency fund are all solid options that can bring you closer to your financial goals. Even if you opt to do nothing with it right away, there are savings alternatives to ensure that it doesn't get mismanaged in the interim.
Put it in a savings account - If you want to keep your money safe and let it earn interest, then a savings account is an option. Discover our savings accounts. Put it in a bank account - If you think you'll be spending money, then you could just keep it in your regular bank account.
Excess Gifts Require a Tax Form
That's because in addition to the $19,000 annual exclusion, there is a $13.99 million lifetime exclusion, per person, for gift and estate taxes as of 2025. “The excess amount goes against the lifetime exemption,” Laginess says.