 |
|
|
|
| |
 |
What are the taxes and penalties for withdrawing money? |
|
| |
|
|
| |
 |
Distributions from your MNDCP account are includible in
gross income for both federal and state income tax purposes and are taxed as ordinary
income in the year the distribution is made. MNDCP is required by law to withhold 20
percent federal income tax. State income tax is only withheld if your resident state
mandates income tax withholding (Minnesota does not) or if you indicate your preferred
withholding on the distribution form.
If you made Roth contributions to your MNDCP account, you paid income tax at the time they
were contributed; therefore, distributions from your MNDCP Roth account are completely tax-free
as long as you meet the following conditions.
- Your MNDCP Roth account (which includes Roth amounts rolled over) must have remained
invested for at least a 5-taxable-year period. The 5-taxable-year period of participation
begins on the first day of the taxable year in which your initial Roth contribution was made
to your Roth MNDCP account. It ends when five consecutive taxable years have passed.
AND the distribution is either made:
- after attainment of age 59 1/2, or
- to a designated beneficiary after your death, or
- in the event of disability.
Any distribution taken from your MNDCP Roth before the end of the 5-taxable-year period or
prior to age 59 1/2 is a nonqualified Roth distribution, negating the tax-free benefit of the
associated earnings. The earnings portion of the nonqualified Roth distribution will be reported
as a taxable distribution and subject to 20 percent mandatory federal income tax withholding.
However, the contribution portion of the nonqualified Roth distribution will not be reported as
taxable.
|
|
|