TX woman is inheriting $200K and wonders whether to pay off her house or invest. The Ramsey Show says ‘buy time’ instead

They’d like to move closer to the caller’s father in a different state. Additionally, Kayla says, “The neighborhood is going in a direction they’re not truly happy with.” So this move could potentially happen within a year, if the right job opportunity materializes.

The couple also floated the idea of investing the money in a mutual fund, but the Ramsey Show hosts had other advice.

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What to do with a windfall, according to the Ramsey Show

Under Ramsey’s traditional “baby steps” framework, aggressively paying down the mortgage would be a natural next move.

Mortgage rates today remain well above the historic lows of 2020 and 2021, according to Freddie Mac’s weekly survey and a large principal payment could save substantial interest over time (5).

But this situation isn’t textbook, with Kamel and Warshaw arguing that the decision largely hinges on their time horizon.

If the couple expects to move within a year, Kamel suggests keeping the money accessible. “I would just kind of keep it loose and put it in a high-yield savings account and just park it at, you know, 3.5% right now. ‘We’re not trying to make a bunch of money off of this, we’re just sort of buying ourselves some time to make the next decision.’”

Warshaw agrees “If you piled it all into the house and just for some reason the house took a long time to sell or it for some reason went down in value, that might make you feel some type of way,” she said. “Moving is expensive and it's just nice to have cash on hand.”

Maintaining liquidity would allow the couple to use the $140,000 as a down payment on their next home, potentially without rushing to sell their current house first, possibly at less-than-ideal rates.

However, if the move is more than three years away, Kamel argued that putting the money toward the current mortgage could make sense. The caller agreed and said they’re on an informal timeline of a year — if they don’t move in the next 12 months, they will apply the large lump sum to their mortgage.

“Yeah, I like that plan!” Kamel agreed: “The money's not disappearing,” he said. “It's just a forced savings plan.”

In both cases, the play is to eventually use the money to pay down a mortgage; it’s just a question of which one. Kamel and Warshaw agreed that this should be the priority for now beyond their retirement plans, over investing in the stock market.

“You can enjoy some of it too. There’s nothing wrong [with] going, ‘Hey, you’re debt-free with an emergency fund.’ Maybe use some of it for enjoyment,” Kamel said.

The hosts recommended setting aside about $5,000 to enjoy a little bit of the windfall — perhaps on a memorable trip — as well as saving roughly $100 per month in a separate “sinking fund” for home and car maintenance.

The hidden risk of windfalls

Windfalls often create urgency. A large sum sitting in a bank account can feel like a problem that needs solving immediately.

But there is a lot riding on that money, including opportunity cost.

Spent wisely, it can enhance a person’s quality of life. Spent poorly, it can lead to years of regret over missed opportunities.

As this caller learned, blindly following generic advice can be dangerous.

The traditional smart moves, such as locking cash into home equity and exposing it to market swings, aren’t always the best immediate play for everyone.

In this couple’s case, flexibility and maintaining liquidity took precedence over squeezing out the highest possible return. And it took personalized advice to realize that.

When inheriting, it’s also an important reminder to check how much of the money you actually get to keep.

While there is no federal inheritance tax in the U.S., residents of Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania may owe state inheritance taxes depending on the relationship to the deceased and the size of the estate (5).