I Inherited $40,000 at 32 and Had No Idea What to Do With It. Here’s What I Actually Did
October 28, 2026
An inheritance is not taxed in Canada, so the real decision with $40,000 is which account it goes into. I put all of it into my TFSA, bought XEQT, and left it alone. Before that, I let it sit in a high-interest savings account for six months while I got my head straight. That pause was emotional, not strategic. Vanguard’s historical modelling of windfalls, as widely summarized, found that investing a lump sum immediately beats a staged approach about two thirds of the time, so if you are calm enough to invest sooner, do.
Should You Invest an Inheritance Right Away or Wait?
Invest as soon as you are thinking clearly, and give yourself a firm date for when that will be. The money came from my grandmother’s estate. I was 32, earning about $65,000 a year in Ontario, renting, with a few thousand dollars in a TFSA and almost nothing in an RRSP. Within a week I had a dozen opinions to sort through. A bank advisor phoned me unprompted. A friend said to buy a rental property. My dad said to pay off debt. Another voice in my head said the market looked shaky and I should wait for a better entry.
I did nothing for six months. The cash went into a high-interest savings account and earned a few hundred dollars of interest, all of it taxable at my marginal rate. One widely cited personal finance Q&A on inherited money recommends waiting six to twelve months before big investment decisions, because grief and sudden wealth both distort judgment. That matched my experience. I was not in a state to choose a fund, never mind a lifetime allocation.
I do not want to oversell the pause, though. Markets rise more often than they fall, so delay carries a real expected cost. My wait happened to overlap with a rough stretch for stocks. XEQT lost 10.93% in calendar 2022, according to BlackRock’s published returns. That was luck, not skill, and I would not repeat the delay on purpose. The piece on why waiting for the dip keeps costing Canadians lays out the numbers.
A pause with a date on it is a plan. A pause with no date is how $40,000 ends up in a savings account for six years.
What made my pause useful was that I put a date on it, the first trading day of January. In the meantime I confirmed with the executor that the money was final and that no tax slips were coming. I also checked my TFSA room in my CRA My Account and set aside an emergency fund from the cash I did not plan to invest. By the time January arrived, the decision had been made. Buying was only the last step.
Why Did the TFSA Beat the RRSP for My $40,000?
The TFSA won because I had far more room than most people realize, because it kept my options open, and because RRSP room does not expire. The 2026 TFSA limit is $7,000, and most people stop reading there. That is a mistake, because unused room accumulates.
2026 TFSA room The annual TFSA limit is $7,000 for 2026, but someone who has been eligible since 2009 and never contributed has $109,000 of cumulative room. The annual limit is therefore not the ceiling on a lump sum, and your own figure is in CRA My Account.
I had only ever put a few thousand dollars into my TFSA, so the full $40,000 fit with room to spare. If you turned 18 more recently, your room is smaller, so check before you contribute. Overcontributing triggers a 1% per month penalty on the excess, and that is a miserable way to lose money you just inherited.
The RRSP argument was closer than the internet makes it sound. At $65,000 in Ontario, my marginal rate was roughly 30%, by my read of the brackets. Every RRSP dollar would have saved me about 30 cents of tax now, and I would have paid tax at my future marginal rate on the way out. If my retirement rate matched my current rate, the two accounts would finish in a dead heat. The RRSP wins only if my retirement rate ends up lower.
Three things broke the tie. A TFSA withdrawal is not income, so it never touches OAS clawback calculations or income-tested benefits. I might need the money before retirement, and TFSA room comes back the following January, whereas RRSP room does not. Most importantly, I expected my income to grow, and RRSP room carries forward indefinitely, so I could save the deduction for years when it would be worth more. At 18% of earned income, my $65,000 salary only created about $11,700 of new RRSP room a year anyway, so dumping $40,000 into an RRSP was never really on the table.
If you are a first-time buyer, the FHSA changes the order. Its $8,000 annual limit, $40,000 lifetime cap and tax deduction on the way in make it worth filling early. The guide to the FHSA and XEQT walks through it. I had no home purchase planned, so I skipped it.
Is an Inheritance Taxable in Canada?
No. Canada has no inheritance tax, and money you receive from an estate is not income on your tax return. The estate settles any tax owing on the deceased’s final return before distributing what is left. That clears up the first question people ask, but it hides a second one that matters more.
The inheritance is not taxed, but what the inheritance earns afterward is. Interest from my savings account during the pause was fully taxable at my marginal rate. Distributions from an ETF held in a non-registered account would be taxable every year, and any capital gain would be taxed when I sold. A sheltered account turns off the tax meter on the growth, and an unsheltered account leaves it running for as long as you hold.
The type of inheritance matters too. Cash from an estate, which is what I received, is the simplest case. If you inherit shares in kind, your cost base is generally the fair market value on the date of death. If you inherit an RRSP or RRIF as a non-spouse, the tax is typically paid by the estate before you receive anything. Ask the executor what applies to you, and get it in writing.
Because my money arrived as cash and I had the room, I never needed a non-registered account at all. No T3 slips, no tracking adjusted cost base, no annual surprise on my return. That simplicity was worth more than any optimization I could have squeezed out of splitting the money.
Why I Chose XEQT Over Everything Else
I chose one fund because every extra decision was another chance to talk myself into a mistake. XEQT holds roughly 45% US equities, 25% international developed, 25% Canadian and 5% emerging markets, through four underlying iShares ETFs, for a 0.20% MER as of 2026. On $40,000 that is about $80 a year. A 2% all-in fee would cost about $800 a year on the same money, every year, with the gap compounding. The breakdown of XEQT’s expense ratio covers the fee math in detail.
At 32, with a horizon of 30 years or more before I would touch the money, I did not need bonds in this account. I did need to accept what a 100% equity fund does. The 10.93% drop in 2022 would have taken about $4,400 off a $40,000 balance. I read that number before I bought and decided I could live with it. People who skip that step are the ones who sell at the bottom.
The purchase itself took ten minutes on Questrade. Wealthsimple would have worked just as well, and both have offered commission-free ETF purchases, though you should check current fee schedules. I placed one order, set up a monthly contribution for later savings, and deleted the price alerts. The tinkering instinct is the real enemy of a windfall, and I knew I would feel the urge again.
What Mistakes Do People Make in the First Year?
The biggest first-year mistakes are checking the balance too often, second-guessing the fund after a bad month, and treating distributions as something that needs managing. XEQT pays quarterly distributions. The latest data shows a trailing yield of about 1.58%, which works out to roughly $630 a year on $40,000. In a TFSA, that money is yours with no tax slip, aside from a small foreign withholding drag on the US dividend portion that you cannot avoid in that account.
Whether to reinvest the distributions is a convenience question inside a TFSA. I turned on DRIP so the units bought themselves. In a non-registered account the answer carries more weight. Distributions arrive on a T3 slip and are taxed whether or not you reinvest them, and each reinvestment raises your adjusted cost base, which you must track to calculate your gain correctly when you sell. That bookkeeping is the quiet cost of using a taxable account.
Rebalancing is the other task people invent for themselves. XEQT rebalances internally, so there is nothing for you to do, and the explainer on whether you need to rebalance XEQT covers why. The temptation I came closest to giving in to was looking at the account every morning for the first month. Early volatility feels personal when the money came from someone you loved. It is not personal, so I set a quarterly reminder and otherwise ignored it.
What Changed at Year Three?
Less than I expected. By 35 my income had grown to somewhere in the low $90,000s. I assumed that would flip my priorities toward the RRSP, but the numbers did not cooperate. In Ontario, the marginal rate at that income is close to what it was at $65,000, and the brackets that really change the math sit well above $100,000. Income growth alone is not the trigger people think it is.
What did change was room and tax diversification. The $40,000 had used up a big chunk of my TFSA space, and a long retirement made me want both a taxable-on-withdrawal bucket and a tax-free bucket to draw from. So I began sending part of each raise to my RRSP and using the refund to top up the TFSA. An RRSP also holds XEQT with no US withholding tax, which is a modest edge for new money.
The account order is a tiebreaker, not a strategy. Buying the fund and leaving it alone does most of the work.
I also revisited the allocation, which took about five minutes. I asked whether I still wanted 100% equities, concluded I did, and closed the tab. If a big life change arrives, such as a child, a house or a career break, that is the time to reconsider. A good month in the market is not.
What Did $40,000 Become, and Why Did the Process Matter More?
Using BlackRock’s published calendar returns for XEQT, $40,000 invested on the first trading day of 2023 would have grown by 17.05% in 2023, 24.67% in 2024 and 20.45% in 2025. That compounds to roughly $70,300 by the end of 2025, a gain of about $30,300. These are calendar figures with no further contributions, so a real statement would differ slightly. Nobody should plan on returns like those continuing, because the same fund lost almost 11% in the year before. You can test more conservative rates with the XEQT growth calculator.
The tax result is where the account choice shows up. I paid no tax on that growth or on the distributions, and I will pay none when I withdraw. Had the same $40,000 sat in a non-registered account, I would have owed tax on the distributions each year. A sale at the end of 2025 would also have triggered a taxable capital gain. At a marginal rate near 30%, with half of the $30,300 gain taxable, that sale alone would have cost roughly $4,500. The shelter was worth thousands of dollars for the price of a bit of room-checking.
The cost of the pause The six months in a savings account probably cost me something in expected return, since markets rise more often than they fall. It also gave me a clear head, a funded emergency account and a plan I did not abandon. Those were worth more to me than a better entry price I could never have predicted.
What the $40,000 actually bought me was not the $70,300. It was a system. One account, one fund, one automatic contribution, and a quarterly reminder I mostly ignore. A relative’s death gave me a lump sum, but what I did with it did not depend on being clever. It depended on being boring on purpose.
Frequently Asked Questions
Is inherited money taxable in Canada?
No. Canada has no inheritance tax, and money you receive from an estate is not reported as income. The estate pays any tax owing on the deceased’s final return. Interest, distributions and gains your inheritance earns after you receive it are taxable in a non-registered account.
Can I put a $40,000 inheritance into my TFSA all at once?
You can if your unused contribution room covers it. The 2026 annual limit is $7,000, but unused room accumulates, and someone eligible since 2009 who never contributed has $109,000 of cumulative room. Check CRA My Account first, because overcontributions are penalized at 1% per month.
Should I invest an inheritance all at once or spread it out?
Vanguard’s historical modelling of windfalls, as widely summarized, found that investing a lump sum immediately beat staged investing about two thirds of the time. Spreading it out mainly buys emotional comfort, so it is a reasonable choice if it keeps you from panicking or abandoning the plan.
How long should I wait before investing an inheritance?
If you are grieving or overwhelmed, a pause of up to six to twelve months is defensible, and some advice on inherited money recommends exactly that. Keep the cash in a high-interest savings account, set a specific date to invest, and use the time to check your registered account room.