Federal Income Tax
Your SDRS benefit payments are subject to Federal income taxation (exception: contributions made to SDRS prior to July 1, 1984). When you apply for retirement benefits, you notify SDRS of how much Federal income tax to withhold by completing IRS Form W-4P. If you do not complete IRS Form W-4P, SDRS is required to withhold at the Single rate with 1 allowance. In determining the proper amount of Federal income tax withholdings for your personal situation, please consult with your tax advisor.
During your retirement, you may change your withholding whenever and as often as necessary by completing a new IRS Form W-4P.
IRS Form W-4P
You will receive an IRS Form 1099-R each January detailing the benefits paid to you, the taxable amount of the benefits, and any taxes that were withheld for your use in filing your annual income tax returns.
Safe Harbor letter
State Income Tax (if applicable)
Your SDRS benefit payments are subject to the tax rules in the state in which you reside. South Dakota does not have a state income tax. If you are a resident of another state you should contact that state's Department of Revenue regarding the tax status of your SDRS benefits. Because of varying state tax rules and regulations, SDRS is unable to withhold state income taxes from your SDRS benefit payments.