7 Expert-Backed Strategies for Investing or Paying Down Debt with a $100K Windfall

If a large sum of money lands in your lap—say, from an inheritance—you might feel overwhelmed by what to do next. The smart thing to do, experts say, is slow down. Don’t be driven by your emotions. Don’t act on impulse.

“All too often, people rush or do what others think they should do,” Marguerita Cheng, a CFP and CEO of Blue Ocean Global Wealth, told Investopedia. “It’s important for people to have the time and space to think about their individual personal and financial situation.”

Here’s a seven-step framework for getting it right.

1. Park Your Money Somewhere Safe

Your first step is to move your funds into a high-yield savings account or money market fund that’s insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per bank.

You could earn up to 5% APY, which for $100,000 is $5,000 per year. Keep your money there until you’re ready to move it.

2. Check Whether You Owe Taxes On It

Not all windfalls are tax-free. Inherited IRAs come with required distributions. Legal settlements may be partially taxable. A bonus is taxed as ordinary income.

The IRS spells out the rules for each scenario, and getting this wrong can mean a surprise bill next April. Talk to a tax professional before you deploy the money.

3. Build Your Emergency Cushion First—and Snag Your Employer 401(k) Match

Over a third (37%) of U.S. adults can’t cover a $400 emergency expense entirely with cash, according to a 2025 Federal Reserve survey. It’s wise to build your emergency fund in two phases: first, a small one (say, $2,000). Then, turn your focus to your 401(k).

If your employer offers to match your salary up to a certain percentage (the median is 4%), take advantage of that as soon as you’ve set aside enough for your small emergency fund. Then, turn back to your emergency fund. To fully fund it, save three to six months of living expenses in a high-yield savings account.

4. Pay Off High-Interest Debt

When it comes to deciding whether to pay off high-interest debt or invest, Cheng advises, “Pay off the debt with higher interest rates and variable interest rates.” That’s because the cost of borrowing this money is more than the money you’d make investing it.

Here’s the straightforward math: The average credit card APR was 20.97% as of November 2025, per the Federal Reserve. The S&P 500’s annualized return over the past nearly seven decades is 10.56%. When adjusted for inflation, the real return is 6.69%. Meanwhile, paying off debt with the average credit card interest rate is a guaranteed 21% return on your money. The stock market can’t promise that.

5. Think Carefully About Low-Rate Debt

A 6.0% mortgage is a different animal from a 21% credit card. When the interest rate on a loan is below what you’d reasonably expect to earn in a diversified portfolio over time, paying it off early is less obvious.

Run the numbers. For many people, keeping the mortgage and investing the difference in a tax-advantaged account makes more sense.

6. Max Out Your Retirement Accounts

With high-interest debt gone and an emergency fund in place, tax-advantaged retirement accounts are your next priority. In 2026, the IRS allows you to contribute $24,500 to a 401(k) ($32,500 if you’re 50 or older) and $7,500 to an IRA. That’s real money shielded from taxes now (traditional) or in retirement (Roth). The earlier you fund these, the more compounding works in your favor.

7. Spend a Little on Yourself

Setting aside 5% to 10% of a windfall for something enjoyable keeps you motivated and prevents the kind of deprivation that leads to overspending later.

So go ahead—take that trip. Upgrade your wardrobe. Spoil your pets.

The Bottom Line

A $100,000 windfall can transform your financial life if you have a plan. Pay off expensive debt first, build an emergency fund, fund retirement accounts, and give yourself permission to enjoy a small slice.