How Minnesota taxes retirement income
Minnesota does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are taxed as ordinary income. Minnesota taxes Social Security benefits to the same extent as the federal government, with an income-based Social Security Benefit Subtraction available to lower/middle-income filers (M.S. 290.0132 subd. 26). Pension income (including federal civil-service pensions) is taxed while resident; military and foreign-service retirement pay is exempt (subd. 21, 39), and a Public Pension Subtraction (subd. 34) exempts up to $25,000 (joint)/$12,500 (other) of qualifying MN public pension annuities, phased out at higher incomes. Traditional 401(k)/IRA/403(b) withdrawals have NO corresponding subtraction anywhere in the 39 subdivisions of M.S. 290.0132 and are fully taxed as ordinary income to the extent they are federally taxable.
Retirement income tax in Minnesota, at a glance
| Income type | Taxed by Minnesota? |
|---|---|
| Social Security | Yes |
| Pensions | Yes |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | Estate tax (exemption $3,000,000) |
| Avg. property tax rate | 1% of home value |
Does Minnesota tax Social Security benefits?
Yes, Minnesota taxes some Social Security income.
Does Minnesota tax pensions and 401(k) or IRA withdrawals?
Yes. Minnesota taxes pension income and 401(k)/IRA withdrawals as ordinary income. Minnesota taxes Social Security benefits to the same extent as the federal government, with an income-based Social Security Benefit Subtraction available to lower/middle-income filers (M.S. 290.0132 subd. 26). Pension income (including federal civil-service pensions) is taxed while resident; military and foreign-service retirement pay is exempt (subd. 21, 39), and a Public Pension Subtraction (subd. 34) exempts up to $25,000 (joint)/$12,500 (other) of qualifying MN public pension annuities, phased out at higher incomes. Traditional 401(k)/IRA/403(b) withdrawals have NO corresponding subtraction anywhere in the 39 subdivisions of M.S. 290.0132 and are fully taxed as ordinary income to the extent they are federally taxable.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- Minnesota taxation of retirement income (Social Security, pensions, 401(k)/IRA): Minnesota Department of Revenue / Taxation.
- Minnesota estate / inheritance tax: Minnesota tax authority.