Does Minnesota Tax Retirement Income?
Minnesota can fully exempt Social Security for low and middle income retirees, but pensions, 401(k)s, and IRAs are generally taxed at rates that top out at 9.85%, and the state layers an estate tax on top.
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Quick answer
Minnesota can fully exempt Social Security for low and middle income retirees, but pensions, 401(k)s, and IRAs are generally taxed at rates that top out at 9.85%, and the state layers an estate tax on top. The top state individual income-tax rate shown for 2026 is 9.85%.
Official sources: Minnesota Department of Revenue, 2026 inflation-adjusted amounts
How Minnesota Treats Each Retirement Income Stream
| Income stream | Minnesota treatment |
|---|---|
| Social Security | Social Security is fully subtractable in 2026 when adjusted gross income is no more than $86,410 for a single or head-of-household filer, $110,780 for a joint filer or qualifying surviving spouse, or $55,390 for married filing separately. Above the applicable threshold, the subtraction phases out, so higher earners pay Minnesota tax on more of their federally taxable benefits. |
| Public and private pensions | Private and most public pension income is generally taxable. For 2026, the qualified public pension subtraction is up to $13,850 for single, head-of-household, or married-filing-separately returns and $27,690 for joint returns or qualifying surviving spouses. It applies only to qualifying public plans where the worker did not also earn Social Security and begins phasing out above $86,410 for single filers and $110,780 for joint filers. |
| Traditional 401(k) and IRA withdrawals | Traditional 401(k) and IRA withdrawals are fully taxable as ordinary income. Minnesota has no general age-based exclusion for retirement account distributions. |
| Military retirement pay | Military retirement pay, including survivor benefits, is fully subtractable from Minnesota taxable income. |
Minnesota gets labeled a high-tax state, and for large IRA balances it is. But a retiree living mainly on Social Security with modest account withdrawals can owe far less than the 9.85% headline suggests, because the Social Security subtraction does real work at moderate incomes.
The State Exclusion That Changes the Math
There is no general retirement income exclusion. The two targeted breaks are the Social Security subtraction with its income phase-out and the qualified public pension subtraction, each with its own AGI limits, plus the full military retirement subtraction.
Model the actual eligibility rule
Watch the Social Security phaseout. An extra IRA withdrawal that pushes AGI past the threshold both adds taxable income and reduces the Social Security subtraction, so the marginal cost of that dollar can be much higher than the stated bracket. Estate planning matters here too given the $3 million exemption.
A Worked Retirement-Income Example
A 68-year-old with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension has roughly $25,000 of federally taxable Social Security and an AGI near $85,000, close to the single-filer threshold. Most or all of the taxable Social Security can generally be subtracted at that income level, but the full $60,000 of 401(k) and pension income stays taxable to Minnesota.
This is a state-income example, not a tax return
Federal tax, local income tax, filing status, deductions, basis, Roth treatment, residency, and plan-specific rules can change the result. Use the example to compare structure, not as individualized tax advice.
Military Retirement and Transfer-Tax Fine Print
Military retirement: Military retirement pay, including survivor benefits, is fully subtractable from Minnesota taxable income.
Estate and inheritance tax: Minnesota has its own estate tax on estates above a $3 million exemption, with rates from 13% to 16%. There is no inheritance tax.
Should Retirement Taxes Drive a Move to Minnesota?
Minnesota gets labeled a high-tax state, and for large IRA balances it is. But a retiree living mainly on Social Security with modest account withdrawals can owe far less than the 9.85% headline suggests, because the Social Security subtraction does real work at moderate incomes.
Watch the Social Security phaseout. An extra IRA withdrawal that pushes AGI past the threshold both adds taxable income and reduces the Social Security subtraction, so the marginal cost of that dollar can be much higher than the stated bracket. Estate planning matters here too given the $3 million exemption.
Compare the annual retirement-income result with property tax, insurance, sales tax, health-care access, housing cost, and the residency facts needed to leave the former state. For a broader comparison, use our 51-jurisdiction retirement tax table.
Minnesota Retirement Tax FAQs
Planning retirement income in Minnesota?
We can model the state and federal interaction before a large distribution, Roth conversion, or interstate move. The initial consultation is free. Educational content is not individualized tax advice.