Personal Finance

My brother and I are getting $235k from my father's 401(k) and I'm planning on getting a new car with it - is this a smart idea?

Christy Bieber

Published: March 2, 2025 5:02 pm

A Reddit user has lost his father and both he and his brother are going to be inheriting from his dad’s estate. The original poster (OP) explained that he and his sibling will each receive $235,000. The OP has around $15K in debt that he’s hoping to pay off with this money, and he is also considering creating a trust for his family with the money he gets. 

Beyond that, he’s not sure what to do. His mom has suggested that he pay off the remaining $170K that he owes on his home, which would help him to reduce interest payments and ongoing monthly costs. He is also planning on buying a new car for his wife but he’s wondering if that’s a good plan.

So, should the Redditor invest in a new vehicle? Or should he do something else with the money?

How to make the most of an inheritance

An inheritance can provide an amazing opportunity to set yourself up for financial success — if you do the right things with it. Paying off high-interest consumer debt is one of those things, especially if you have credit card debt or personal loan debt at a high rate. By eliminating your loan balances, you can save on interest and free up more of your money to use for current needs so you are less likely to ever need to borrow again.

Once you’ve paid off high-interest consumer debt, though, then you have a few choices for what to do next.

You could pay off mortgage debt, but that’s often not the best idea. Mortgages are typically low-interest loans designed to be repaid over a long time. If you itemize when you file your taxes, mortgage interest is also deductible. This means the government helps subsidize it. You can also usually get a better ROI by investing than by saving on mortgage interest, so there’s very little reason to repay your loan early. In fact, keeping it benefits you due to the tax deduction and the fact you pay off your loan with less valuable dollars due to inflation. 

You could also splurge on things like a new car, but that’s an even worse idea than paying off your mortgage early. Cars are depreciating assets, which means that when you buy them, they lose value right away and over time. Your net worth does not increase in the long run when you buy a new car, and you commit to ongoing costs like insurance, maintenance, and repairs, which could be higher if you buy your wife a fancy new vehicle. In fact, you should very likely steer clear of doing this unless your wife is in dire need of a new car and you find an affordable used one you can pay for with a small amount of cash. 

Instead of spending money on a car that might make you happy now but that will do nothing for your overall financial health, you should strongly consider investing the money instead. Investing will allow the funds to grow and help you achieve financial freedom, which is going to benefit you much more than a new car could.

Investing your inheritance could change your future

If you can pay off the $15K in consumer debt you owe and invest the remainder of your $235,000 inheritance, you should be in amazing shape financially going forward. Depending on where you live and how the inheritance is structured, you may not owe any inheritance or estate tax on an inheritance of this size, so you should be able to invest close to $220k. The OP doesn’t say how old he is, but assuming that the money grew for 20 years at an 8% average annual rate of return, the initial $220K investment could turn into just over $1.025 million. 

The inheritance, in other words, could make the OP a millionaire.

Investing ensures the money lasts, and isn’t squandered as so many inheritances are, and it is the very best thing that the poster could do to honor his dad’s legacy. A financial advisor could help the OP to decide how much of the inheritance to invest, and what to put the money into, so talking with an advisor would be well worth it to ensure the money is used in the best way possible.