We’re Inheriting $1.3M—What Should We Liquidate First?

Summary

Ramsey Everyday Millionaires — Episode Summary

Podcast: Ramsey Everyday Millionaires
Episode: We’re Inheriting $1.3M—What Should We Liquidate First?
Date: November 7, 2025
Hosts: Dave Ramsey (A), Co-host (C)
Caller: Justin from Chattanooga

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Episode Overview

In this episode, Dave Ramsey and co-host advise a long-time listener, Justin, who is about to inherit $1.3 million through a blend of retirement accounts and investments. Justin seeks guidance on which assets to liquidate first, hoping to pay off his mortgage and possibly transition to a single-income household to allow his wife to stay home with their children. The conversation covers tax implications of inherited accounts, asset prioritization, and maintaining disciplined financial habits after a windfall.

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Key Discussion Points & Insights

1. Caller’s Situation—Asset Breakdown ([00:20])

• Justin's Current Finances:
  • $875K in retirement accounts
  • Owes $390K on mortgage (5.875%)
  • Home value: ~$600K
• Inheritance Includes:
  • $700K in traditional IRA
  • $300K in Roth IRA
  • $100K in brokerage account
  • $12K in HSA
  • $150K in annuity (with lump sum or 10-year payout option)

2. Prioritizing Liquidation ([01:52])

• Justin's Goals:
  1. Pay off the mortgage
  2. Enable his wife to stay home with their children
• Dave's Immediate Advice:
  • Use the annuity (by lump sum) and brokerage account first toward the mortgage.
  • Move the Roth IRA to a new Roth account and make it the “last money touched.”
  • HSA likely to be cashed out, as inherited HSAs can’t typically be rolled over.
  • With the new Secure Act, inherited traditional IRAs must be liquidated within 10 years—plan withdrawals to minimize tax bracket jumps.

Notable Quote ([02:07]):
"The annuity lump sum, you can roll that to a traditional IRA... [but] that's just clear money then. We're going to use that and the brokerage towards the house. That gives me 250 of it..."
— Dave Ramsey

3. Tax Strategy for Withdrawals ([03:10], [03:56])

• Use traditional IRA withdrawals (plus taxes) to cover any remaining mortgage balance.
• Spread remaining IRA withdrawals over ~5 years (vs. 10), to minimize “bracket creep”—the risk of moving into a higher tax bracket.
• Roth IRA should remain untouched and invested for future growth.

Notable Quote ([03:56]):
"You're gonna pull some of that $700K out, enough to get to there and enough to pay the taxes that it creates...I'm going to pull the rest out gradually over time to avoid bracket creep on your income tax brackets."
— Dave Ramsey

4. Lifestyle Impact and Discipline ([04:49], [07:23])

• Justin confirms that with the house paid off, they can live on a single income, needing only $1,200–$1,500/month extra, which can be pulled from inherited assets.
• Dave and co-host note Justin’s disciplined approach and how years of “paying attention” puts him in control, minimizing the impulse to make big lifestyle changes after a windfall.

Notable Quote ([07:23]):
"Looks like this guy's not changing his lifestyle hardly at all. He's going to be the same...he's been disciplined his whole [life]."
— Co-host

5. The Power of Proactivity ([07:36]–[08:34])

• Emphasis on knowing your numbers and actively managing finances as the core of wealth-building.
• Learning evolves from initial budgeting to mastery over complex decisions, like managing an inheritance.

Notable Quote ([08:10]):
"The first step is just getting on a budget and starting to pay attention to your monthly in-go and monthly out-go... that knowledge starts to compound on itself."
— Co-host

6. Educational Moment: Inheritance & the Secure Act ([08:34])

• Clarifies that inherited Roth IRAs are not subject to the Secure Act’s mandatory 10-year liquidation, as they are tax-free for the beneficiary.
• Dave advises listeners (especially those approaching retirement) to consider Roth conversions for future tax-free growth and ease of inheritance.

Notable Quote ([08:34]):
"Roth IRAs are not subject to the Secure act when they're inherited...You pay up, pay taxes and convert to Roth. Pay taxes and convert with extra money because then it grows not only tax free for this generation, but also for the next generation."
— Dave Ramsey

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Memorable Moments & Quotes

• On the value of discipline:
  "He did not become a millionaire because of inherited money." — Dave Ramsey ([07:15])

• On strategic Roth use and tax law:
  "Like that $300K Roth he had, he can let that one run. The other one, he's got to cash it out because Biden wants his money." — Dave Ramsey ([End])

• On financial self-awareness:
  "You have to be proactive and happen to your money, not have it happen to you." — Dave Ramsey ([07:36])

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Timestamps for Key Segments

• [00:20] – Justin describes his financial position and inheritance
• [01:52]–[03:09] – Asset prioritization and initial liquidation advice
• [03:10]–[04:49] – Tax management strategies for inherited assets
• [04:49]–[05:27] – Planning for a single-income household post-mortgage
• [07:07]–[07:36] – Reflection on Justin’s discipline and millionaire mindset
• [08:10]–[08:34] – Explanation of the Secure Act and importance of Roth conversions

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Conclusion

This episode offers practical, step-by-step advice for anyone facing an inheritance, focusing on tax-smart liquidation, disciplined financial planning, and avoiding impulsive lifestyle changes. The key message: Know your numbers, make a plan, and use professional guidance to keep wealth working for you and your family—now and for the next generation.

Transcript

[A]

Foreign. This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Justin is in Chattanooga. Hi, Justin. How are you?

[B]

I'm doing well. Thank you all so much for taking my call.

[A]

Sure. What's up?

[B]

So I'm going to throw some numbers at you. My wife and I currently have total investments of approximately 875,000 in retirement accounts. We owe 390 on a mortgage at 5.875% home estimate, conservatively probably 600,000. We are inheriting a windfall from an unexpected death in the family. And I'm going to break that down for you because that's where the bulk of my question comes in. We are getting approximately 700,000 in a traditional IRA, approximately 300,000 in a Roth IRA, approximately 100,000 in a brokerage account, 12,000 in an HSA, and 150,000 that's in an annuity with two payout choices. One either lump sum, which is what I'm leaning towards, versus leave it in the annuity for 10 years, let it grow, and then there's a payout at the end of 10 years.

[A]

Okay, so who passed away?

[B]

I'm sorry. It was an uncle that was very much in excellent health and it was a very big surprise.

[A]

Wow.

[B]

Yes.

[A]

I'm sorry to hear that. But you. We found him. You're the guy that had the rich uncle. Who knew. Yeah. Yeah.

[B]

I've listened to you for 15 years. I thought I would never be the one.

[A]

Yeah. That's crazy. So you want to, you want me to walk through that? Is that you want, what you want us to do?

[C]

Yeah.

[B]

Well, the two goals are, one is to pay off the mortgage, and then we're also looking at possibly having my wife stay home with our children. So meeting those two goals is kind of what we're heading towards. And, and how do I prioritize these accounts? Yes, sir.

[A]

Yeah. In terms of using them? Yeah.

[B]

Yes, yes, yes, sir.

[A]

Okay. The annuity lump sum, you can roll that to a traditional IRA and have. Wait a minute, wait a minute, wait a minute, wait a minute. You're the beneficiary on the annuity, that's correct.

[B]

Yes, sir.

[A]

Okay. That's just clear money then. Okay, that's. We're going to use that and the brokerage towards the house. That gives me 250 of it. Okay. The Roth, you can roll to a Roth. And it can grow from the rest of your life tax free. It's the last thing I'm touching?

[B]

Yes, sir.

[A]

Okay. 12,000 HSA. I don't remember the rules on that. On an inherited hsa, I, I suspect it's going to be just like your traditional ira, which under Biden's new laws, the Secure act, he called it. Inherited traditional IRAs or 401ks have to be liquidated over a 10 year period of time because the taxes have not yet been paid on them. And when you liquidate them, you're going to pay income tax on that?

[B]

Yes, sir.

[A]

Okay. So that one you've got to take out over 10 years. And I would sit down with your smartvestor pro and determine how fast I'm gonna take that out. But I'm gonna take out enough now to get the mortgage paid off. Okay. And probably in the process, if I can't roll that HSA over, it's probably gotta be cashed out too. It's small. I'm just gonna go ahead and cash it out just for cleanliness. Okay. So the brokerage, the annuity and the HSA are gone. The, the Roth is gonna move on. We'll take enough out of the traditional plus taxes to finish off the amount to pay the mortgage. Okay. Cause I only got $250,000 in the first two brokerage and annuity. Right. How much was the annuity?

[B]

150?

[A]

Yeah.

[B]

250 total?

[A]

Yes sir. Yeah, 250 total. And I need 390. And so you're gonna pull some of that 700 out, enough to get to there and enough to pay the taxes that it creates. And then I'm gonna pull the rest of that out grab gradually over time to avoid bracket creep on your income tax brackets. So probably about a five year pull on the balance of that, not a ten year. And just as you pull it, it's just yours, then you can do with it. You don't have to roll it, you don't have to do anything. But that Roth is sweet because it can continue in the Roth. And as young as you are, that 300 could be millions and millions, just leaving it alone in good growth stock mutual funds. Right now, as far as your wife being at home with your house paid off, which is really all that's happening here. The rest of this is not going to create any cash today to amount to anything. Can y' all live on your income with your house paid off?

[B]

We can live on just my income alone. To kind of maintain the same lifestyle that we've had, we would need twelve to fifteen hundred dollars a month, which wouldn't cause a Major drawdown on any of this. I wouldn't.

[A]

Counting the house being paid off.

[B]

Yes.

[A]

Okay. All right. Yeah. Well you've done a great job of analyzing it. You know exactly where you are. If you're working, not working with Smartvestor Pro, sit down with one and map through what we talked about, see if they agree with me. Maybe I'm missing something. I don't think I am. But then you could pull that 12, 1500 off that seven, what's left of that 700 really easy.

[B]

Okay.

[A]

It's just taxable.

[B]

My big concern was not bumping up in tax brackets and paying the government. You know what I would, we could use, you know, for other things.

[A]

You're going to pay the government some this year to get enough out to pay the house off.

[B]

Okay.

[A]

And you might bump your tax bracket this year. But I'm going to go, I'm not going to worry about this year. In the coming years, 26 and beyond, I'm going to map out what you're talking about and avoid bracket creep, sir, if possible. And you can do that on it's $15,000 a year is 1200 bucks. You can do that. That's.

[B]

Yeah, yeah. That, that, that's all we need really.

[A]

Yeah. That's not going to destroy your life or I mean mess up your bracket creep or any of that stuff. And, and I mean, and you're aware that the bracket creep is just kind of a math riddle. It's not like if you move from 36 to 39%, I don't know what your income is. But that does not move 3% on everything. It's 3% on the last dollar.

[B]

Yes sir.

[A]

Okay. So the first number of dollars are already gonna be what they are. That doesn't change. But it just means I'm gonna pay 39% on it instead of 36% on it. Cause I didn't put a dial on it. Right. So you wann where you just get right up to the edge and then don't pay that extra 3 on that bracket jump. And again, somebody that's doing a little bit of tax work with you can help you do that in. Your SmartVestor Pro can get that dialed in. That's very cool.

[C]

That's very good.

[A]

Wow.

[C]

I mean it sucks that someone had to pass away, but to your point, somebody had the rich uncle.

[A]

Yeah man. Yeah. And he's already a millionaire by the way, before we got here.

[C]

It just goes to show what you can do to change someone's life when you yourself have Your finances in order to.

[A]

So he's now worth $2 million.

[C]

Yeah. Good for him.

[A]

But he did not become a millionaire because of inherited money.

[C]

No, he was already there.

[A]

Already there. Barely. Yeah, barely. And then he just doubled it. Yep, that's what it amounts to. So got about a million three there, I think.

[C]

Looks like this guy's not changing his lifestyle hardly at all. He's going to be the same, you know what I'm saying? His wife will stay home, they'll pay off their house, but he's not going to go out and do something crazy because he's been disciplined his whole.

[A]

I've always wanted to buy a yacht for $12,000 a month and he didn't call me with that question. This guy's gonna be fine. He's gonna got it all dialed in. He knows his numbers, knows exactly where they are. See, that's the thing. Even if you didn't do stuff exactly the way we teach, if we can just get you to pay attention, that guy's paying attention. He knows exactly where he is. He's already had thoughts about every one of these things, and he's paying attention. And so you have to be proactive and happen to your money, not have it happen to you. And when you're teaching the budgeting classes, that's what you talk about.

[C]

That's right. It's about you for the first time, looking at everything and you stair step on knowledge. Right. That guy said he's been listening on and off for 15 years. And that's the way it goes. The first step is just getting on a budget and starting to pay attention to your month in go your monthly outgo. That's the first step. And then after a while, that knowledge starts to compound on itself. And before you know it, you're just like, you know the fellow that just called in here.

[A]

Yeah.

[C]

Fully in control.

[A]

Couple of million, me and two and a half million in a heartbeat here. Wow. Very cool. Very cool. So, by the way, though, some of you out there that are doing all your talking and your theories and everything, Roth IRAs are not subject to the Secure act when they're inherited. Mm. Because they're tax free. And so I have moved everything I have, I'm 65, into Roth, my baby step seven. I heard you answering a question about that the other day. You were correct. You know, you pay up, pay taxes and convert to Roth. Pay taxes and convert with extra money because then it grows not only tax free for this generation, but also for the next generation. And they're not required to withdraw it. They can just let it grow. Like that 300 Roth he had, he can let that one run. The other one, he's got to cash it out because Biden wants his money.