Inherited IRA 10-Year Rule in Minnesota
The inherited IRA 10-year rule requires most non-spouse beneficiaries to empty an inherited retirement account by the end of the tenth year after the original owner's death, and for many of them to take a distribution in each of the years in between. 360 Financial, a fee-based fiduciary firm with offices in Wayzata and Elk River, Minnesota, works with beneficiaries on how to spread that withdrawal rather than letting a deadline decide it.
The mistake under the inherited IRA 10-year rule is almost always the same one, and it is understandable. A man in Elk River inherited his mother's IRA and did what felt respectful: he left it alone. Nine years later he came in with a balance that had to come out within twelve months, stacked on top of his own peak earning years. Nothing about the account had gone wrong. The sequencing had.
Who the Inherited IRA 10-Year Rule Applies To
The SECURE Act brought the inherited IRA 10-year rule in for accounts inherited after 2019. The lifetime stretch that let a beneficiary take small distributions across their own life expectancy is gone for most people.
A defined group is carved out of it. Surviving spouses, minor children of the original owner, beneficiaries who are disabled or chronically ill, and beneficiaries not more than ten years younger than the original owner generally fall outside the ten-year window and may use life expectancy instead. A minor child's exception runs out at the age of majority, after which the ten-year clock starts.
Everyone else, which in practice means most adult children, is inside it.
The Inherited IRA 10-Year Rule and Annual Distributions
For several years after the law changed there was genuine uncertainty about whether annual withdrawals were required inside the window, or whether a beneficiary could simply take everything in year ten. Final regulations settled it in 2024, and the answer depends on one fact: whether the original owner had already begun required minimum distributions before death.
If the owner died on or after their required beginning date, the beneficiary generally must take an annual distribution in years one through nine and empty the account by the end of year ten. If the owner died before that date, no annual distribution is required inside the window, but the account still has to be empty at the end of it.
Beneficiary situation | Annual withdrawals required | Account must be empty by |
Adult child, owner died after RMDs began | Yes, years one through nine | End of year ten |
Adult child, owner died before RMDs began | No annual requirement | End of year ten |
Surviving spouse | Generally not under this rule | Life expectancy options apply |
Minor child of the owner | Annual, until age of majority | Ten years after majority |
Disabled or chronically ill beneficiary | Life expectancy basis | Not applicable |
Missing a required withdrawal carries a penalty, reduced to ten percent if the shortfall is corrected promptly, which is a meaningful reason to know which column you are in rather than assuming.
Why Minnesota Beneficiaries Feel This More
Every distribution from a traditional inherited IRA lands as ordinary income on both a federal and a Minnesota return. Minnesota's top individual rate sits near 9.85 percent, so a beneficiary in a high bracket can see a combined marginal rate that makes the difference between a flat ten-year withdrawal and a single year-ten lump sum very large on a sizable account.
The arithmetic is unglamorous but it is the whole game. Spreading a 500,000 dollar inherited account evenly across the window keeps each year's addition to income relatively modest. Taking it in one year can push a household through several federal brackets, raise Medicare premium surcharges two years later, and increase the share of Social Security benefits that is taxable if the beneficiary is already retired.
That last point is worth sitting with. The inherited IRA 10-year rule does not just create a tax bill. It interacts with everything else on the return.
Inherited IRA 10-Year Rule: Building a Plan, Not a Deadline
The useful version of this work looks forward across the ten years rather than year by year. A few questions tend to set the shape of it.
Where will your own income be highest and lowest across the next decade? A sabbatical, a retirement date or a year between jobs is a natural place to take more.
Are you likely to be in a higher bracket at the end of the window than at the start? If so, front-loading usually costs less than waiting.
Does charitable giving fit? Bunching gifts or using a donor advised fund in a heavy withdrawal year can offset part of the income.
Is any portion of the inherited account Roth? Roth inherited accounts follow the same ten-year emptying requirement, but qualified withdrawals are generally tax-free, so those are usually the ones to leave for last.
Are there several beneficiaries? Each inherits a separate share with its own circumstances, so one family plan is rarely one strategy.
Our LifeWealth Process looks at Family, Occupation, Recreation and Money together, which matters here because the right answer is driven as much by your own career arc as by the account. Our retirement planning team and our CPAs run those projections in the same conversation rather than passing them back and forth.
What to Do in the First Few Months
There is no rush to withdraw, but there is value in setting things up correctly early. Move the assets into a properly titled inherited IRA rather than taking a distribution to a bank account, since a non-spouse beneficiary generally cannot roll an inherited IRA into their own. Confirm the date of death and whether the original owner had started required distributions, because that single fact decides which column of the table above applies. Name your own successor beneficiary on the inherited account. Then build the withdrawal schedule before the first year closes.
Frequently Asked Questions
Does the inherited IRA 10-year rule apply to accounts inherited before 2020? Generally no. Accounts inherited before 2020 usually continue under the older life expectancy rules.
Under the inherited IRA 10-year rule, can I take the whole balance in year ten? Only if the original owner died before their required beginning date. If distributions had already begun, annual withdrawals are required in years one through nine as well.
Does a surviving spouse have to follow this? Typically not. A spouse generally has options other beneficiaries do not, including treating the account as their own or remaining a beneficiary.
What happens if I miss a required withdrawal? There is an excise tax on the shortfall, reduced if corrected within the window the rules allow. Correcting it promptly matters.
Is an inherited Roth IRA treated differently? It still has to be emptied within ten years, but qualified withdrawals are generally tax-free, which usually argues for leaving it until last.
How does Minnesota tax these distributions? As ordinary income, with no special treatment for inherited retirement accounts. Confirm your own situation with a qualified tax advisor.
Talk It Through Before the Clock Runs
If you have inherited a retirement account and want a plan for the window rather than a deadline, you can book a free 15-minute introduction with a fiduciary advisor at schedule.360financial.net.
You can also call the Wayzata office at 952-542-8900, the Elk River office at 763-241-0841, or reach the team through the contact page.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 1/2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
This article was created for informational purposes only. LPL Financial makes no representation as to its completeness or accuracy.
