Your MNDCP withdrawal is subject to federal and state income taxes. Tax withholding is based on a default established by the IRS and Minnesota Department of Revenue or your instructions. You have two options to consider when applying for a withdrawal from your MNDCP account.
Option 1 – Default Tax Withholding
If no tax forms are submitted with your application for an MNDCP withdrawal, the default withholding will apply.
- Federal - See the "Default federal tax withholding" section for default rate by type of distribution (next section below).
- Minnesota State - 6.25% (MN residents only. If you are a non-Minnesota resident, contact your state for tax withholding requirements.).
Option 2 – Complete Tax Form(s) to Choose Withholding
To withhold a tax amount other than the default, complete a tax withholding certificate and submit to MSRS.
Default federal tax withholding
- Installment payments scheduled to last less than 10 years - default withholding rate is 20%
To choose a rate greater than 20%, complete a W-4R form. Download the form at www.irs.gov. Submit to MSRS with the installment form.
- Installment payments scheduled to last 10 years or more - default withholding rate is single and no adjustments (regardless of your marital status)
To choose an alternate withholding rate, complete a W-4P form. Submit to MSRS with the installment form.
The default withholding rate is 20% on distributions you receive that are eligible for rollover but not rolled over to another eligible pre-tax retirement plan or an IRA. To choose a rate greater than 20%, complete a Form W-4R Withholding Certificate.
Download a W-4R form at www.irs.gov.
Submit the W-4R form to MSRS with your withdrawal form.
Change withholding after installment payments begin
If you are set up to receive installment payments or automatic RMDs, you may change your tax withholding at any time.
Online: Login to your account online (this assumes you already have a monthly pension benefit payment established).
Please note: MSRS retirement representatives are not tax advisors. If you have questions on how to complete the tax forms, please contact your tax professional.
No IRS early withdrawal penalty
One advantage the MNDCP has over a 403(b), 401(k) or IRAs is that withdrawals are not subject to the IRS 10% tax penalty. This penalty is typically assessed on withdrawals made before age 59½. If you roll over your MNDCP account assets to other types of plans, the early withdrawal tax penalty may apply.
Tax form 1099-R sent to you by January 31
Form 1099-R reports all taxable income you received from your MNDCP account and any state and federal taxes withheld. You will need this information when filing your annual tax return. MSRS will mail you a 1099-R by January 31 of the tax year following your distribution. Form 1099-R is available online; you must log into your MSRS account online.
For further information
Call your tax advisor, an IRS district office, or the Minnesota Department of Revenue at 651-296-3781 or 1-800-652-9094. For teletypewriter users or telecommunications-device-for-the-deaf users, call the Minnesota Relay Service at 1-800-627-3529 and ask to be connected to Revenue's Taxpayers' Assistance Office at 651-296-3781.