For Wisconsin retirees, the way you withdraw money often matters just as much as how much you saved. Every dollar pulled from your retirement accounts comes with tax rules attached, and those rules can make the difference between stretching your savings comfortably or watching more go to retirement taxes than you expected.
How do you create a withdrawal strategy that keeps more in your pocket and less in Uncle Sam’s?
The answer lies in understanding how Wisconsin handles retirement income, from tax brackets to Social Security treatment, and shaping withdrawals with those details in mind. With the right approach, you can design a plan that funds today’s lifestyle while protecting your retirement for years ahead.
What Are the Wisconsin Tax Rules That Retirees Should Know?
Wisconsin’s tax treatment of withdrawals from your savings or retirement accounts affects how much you’ll truly have to spend each year. The state imposes progressive tax brackets, meaning higher amounts of retirement income are taxed at higher rates. For 2025, here’s how the brackets break down (by filing status):1
Single Filers:
- 3.50% on taxable income up to $14,320
- 4.40% on income over $14,320 up to $28,640
- 5.30% on income over $28,640 up to $315,310
- 7.65% on income over $315,310
Married Filing Jointly:
- 3.50% on taxable income up to $19,090
- 4.40% on income over $19,090 up to $38,190
- 5.30% on income over $38,190 up to $420,420
- 7.65% on income over $420,420
Married Filing Separately:
- 3.50% on taxable income up to $9,550
- 4.40% on income over $9,550 up to $19,090
- 5.30% on income over $19,090 up to $210,210
- 7.65% on income over $210,210
If you are age 67 or older, Wisconsin gives you a retirement income exclusion of up to $24,000 for single filers, and up to $48,000 if you are married filing jointly. That means certain withdrawals from traditional retirement accounts may not count toward state taxable income.2
State sales tax sits at 5%, and with local additions, the average combined rates are a bit higher.3 Property taxes also add a layer of cost: Wisconsin’s average effective property tax rate is 1.51%, which is one of the highest in the country.4
Which Accounts Should You Withdraw From First?
When you’re planning withdrawals from retirement accounts, the sequence in which you draw down your portfolio can affect your tax efficiency, your Social Security thresholds, and how high your income pushes you into certain tax brackets. Here’s a suggested order with explanations:
Start With Taxable Accounts: These might include brokerage, savings, and investment accounts. Taking withdrawals here early allows your taxable income to be stretched out, as gains may be long-term capital gains (often taxed at lower rates than ordinary income), and you’re not yet triggering high marginal state or federal rates.
Hit Tax-Deferred Accounts Next: Distributions from 401(k)s or IRAs fall into this category. Because amounts taken here are taxed as ordinary income, spacing them out after taxable accounts can help avoid hitting higher brackets and reduce the overall tax impact.
Tap Tax-Free Accounts Last: This includes Roth accounts or any account from which withdrawals are tax-free. Delaying withdrawals from these accounts preserves future flexibility, helps with years when health or spending needs rise, and gives you safe zones when income from other sources spikes.
Please Note: Sometimes it makes sense to deviate. For example, tapping tax-deferred accounts earlier may help manage Medicare premiums or smooth out lifetime liabilities. The right sequence isn’t about rigid rules—it’s about shaping an efficient strategy that fits your personal financial situation, income streams, spending needs, and long-term goals.
How Do Roth Conversions Fit Into a Wisconsin Retirement Plan?
Converting part of your traditional retirement account balance into a Roth IRA can be a fantastic move for Wisconsin retirees, but timing is everything. When you complete a conversion, the transferred amount is subject to income taxes in the same year the conversion takes place. That can make sense during years when your overall income is lower, such as before claiming Social Security benefits or while working part-time.
Why consider paying taxes now instead of later?
Wisconsin follows federal rules for taxing Roth IRA conversions, so the amount converted is subject to both federal and state tax rates in the year of the transaction. However, once inside the Roth, growth and qualified withdrawals are tax-free. That makes conversions a way to reduce the impact of future required minimum distributions (RMDs) and provide more optionality for later years.
You also don’t have to do just one Roth conversion.
Strategic conversions can also reduce your long-term tax impact by smoothing out income over multiple years. By converting in increments instead of large lump sums, you may avoid pushing yourself into higher tax brackets. The goal is to line up conversions with years where your filing status or income level leaves extra space in lower brackets, giving you more control over what you’ll pay in lifetime taxes.
What Role Do RMDs Play in Your Withdrawal Strategy?
Once you reach a certain age, the IRS requires withdrawals from retirement accounts like IRAs and 401(k)s. These are known as required minimum distributions (RMDs). They can significantly affect your withdrawal strategy, since the amounts are taxable and can’t be skipped without penalty. Wisconsin taxes RMDs as ordinary income, so they’ll count toward your state and federal taxable income:
When RMDs Begin: Federal rules require RMDs starting at age 73 (they’ll jump to age 75 in 2033). For Wisconsin residents, those withdrawals flow into your state return the same year, adding to your income stream.
Tax Impact in Wisconsin: RMDs are taxed just like other withdrawals from retirement accounts, so planning around your annual distribution amount is key. Larger balances mean larger required withdrawals, which can, in turn, increase your total taxes.
Pre-RMD Withdrawals: Some retirees draw from their retirement savings earlier than required to gradually shrink account balances. This can help reduce future RMDs and keep spending more predictable.
Qualified Charitable Distributions (QCDs): For those who want to support charity, a QCD makes it possible to transfer funds straight from your IRA to an eligible nonprofit organization. This counts toward your RMD but doesn’t raise your taxable income, making it a useful part of tax planning.
Coordinating With Other Income: Combining RMDs with pension payments or Social Security income may bump you into a higher bracket. Coordinating timing and amounts with a financial advisor can help limit that effect.
How Should You Manage Social Security Benefits for Tax Purposes?
The timing of when you begin taking Social Security benefits influences not only the size of your monthly payment but also the portion subject to taxation. Federally, as much as 85% of those benefits can be counted as taxable income, depending on your combined income level. Wisconsin, however, exempts all Social Security from state taxation.
So how do you use that exemption to your advantage?
One approach is to coordinate withdrawals in retirement with the year you start benefits. For example, delaying benefits until age 70 may increase your monthly payout while giving you several lower-income years to draw from retirement assets or complete Roth conversions at a favorable rate. This type of sequencing can seriously reduce your tax burden.
It’s also worth considering how withdrawals interact with federal thresholds. Pulling large sums from IRAs or other tax-deferred accounts in the same year as Social Security may raise your combined income, triggering a bigger portion of benefits to be taxed. Spreading withdrawals more evenly or mixing in Roth accounts or savings accounts can help you stay below those limits.
Finally, keep an eye on how Social Security interacts with Medicare. Higher income can lead to increased Medicare premiums, which can sometimes feel like a hidden tax. A coordinated plan that blends benefits with investment strategies and controlled withdrawals creates more room for flexibility down the road.
What About Other Income Sources?
Your retirement picture isn’t shaped only by your IRAs and 401(k)s. Other income sources, such as pension payments, annuities, or part-time wages, also play a role in your financial situation. Each of these has unique tax rules in Wisconsin, and how you blend them with withdrawals from retirement accounts can determine your overall tax efficiency:
Pension Income: Public pensions in Wisconsin, such as those from the Wisconsin Retirement System, are fully taxable. Private pensions are also taxed as ordinary income at both federal and state levels. However, Wisconsin does not tax military retirement pay or benefits received from the U.S. Railroad Retirement Board.5
Annuities: Payments from annuities are partly taxable depending on whether they were funded with after-tax dollars. The portion representing your original investment is not taxed, while earnings are. Wisconsin follows federal rules here, so knowing the split is helpful when planning your taxes,
Part-Time Work: Many retirees continue working part-time, whether for purpose, social connection, or extra cash flow. Wages are fully subject to federal and Wisconsin income taxes, and they may increase how much of your Social Security is taxed at the federal level.
How Capital Gains Taxes Work in Wisconsin
Wisconsin taxes capital gains as part of your regular state income, so the rate you pay depends on your filing status and overall taxable income. For 2025, the brackets are:6
- 3.50% on income up to $14,680 for single filers and up to $19,580 for married couples filing jointly
- 4.40% on income between $14,680 and $29,370 for single filers, and between $19,580 and $39,150 for married couples filing jointly
- 5.30% on income from $29,370 to $323,290 for single filers, and from $39,150 to $431,060 for married couples filing jointly
- 7.65% on income above $323,290 for single filers, and above $431,060 for married couples filing jointly
Wisconsin does provide some relief for your investments: there’s a 30% exclusion on long-term capital gains tax rate for assets held longer than a year, and a 60% exclusion if the gain comes from selling farm property.7
How Can You Coordinate Withdrawals With Healthcare Costs?
Medical costs are often one of the most significant expenses in retirement. Planning ahead means considering how Medicare premiums, out-of-pocket bills, and future care needs will interact with your taxable income.
Could the way you cover medical costs actually reduce your tax bill?
One powerful tool is the health savings account (HSA). These accounts let you make tax-free withdrawals for qualified medical expenses of any kind, including prescriptions, premiums, and other healthcare needs. After enrolling in Medicare, generally at age 65, you can’t make new contributions to an HSA, but you can continue spending the funds you’ve already saved. That makes pre-65 contribution years especially valuable for building flexibility later.
After turning 65, HSAs provide a distinct advantage. You’re allowed to withdraw funds for non-medical purposes without facing a penalty. In that case, withdrawals function like those from traditional retirement accounts; they are taxed as ordinary income but avoid the 20% penalty applied to younger account holders. This gives retirees another tool for managing cash flow in years when medical costs are lower.
Tax-Smart Withdrawal Strategies for Wisconsin Retirees FAQs
Do Wisconsin retirees pay taxes on Social Security?
No. Wisconsin exempts all social security income from state taxation. However, federal rules may still apply: up to 85% of your benefits can be subject to federal tax depending on your combined income.
What happens if I move out of Wisconsin in retirement?
If you relocate, your tax treatment depends on your new state’s laws. While Wisconsin does not tax Social Security or impose estate taxes, another state might. A change in residency can also affect filing status and available credits.
What are Qualified Charitable Distributions (QCDs), and how do they help with taxes?
QCDs let you transfer money directly from your IRA to a qualified charity once you reach age 70½. The distribution counts toward your required minimum distribution but doesn’t increase your taxable income. This makes QCDs a powerful tax strategy for reducing lifetime taxes, lowering Medicare premiums linked to income, and supporting causes you care about, all without writing a check from taxable funds.
Can healthcare expenses lower my Wisconsin tax bill?
Yes. Paying qualified medical expenses through a health savings account (HSA) lets you withdraw funds tax-free, keeping those amounts out of your taxable income. Large medical bills may also be deductible at the federal level if they exceed a certain percentage of your adjusted gross income, making careful timing important for financial investors.
When does it make sense to do a Roth conversion in Wisconsin?
Conversions often work best in lower-income years, such as before RMDs begin or before starting social security benefits. Paying taxes at lower tax rates now can reduce higher taxes later, especially if you anticipate moving into higher brackets or leaving behind large retirement assets.
How We Can Help You Create a Tax-Efficient Retirement Plan
A thoughtful withdrawal strategy helps Wisconsin retirees lower retirement taxes and stretch their savings further. Coordinating accounts, Roth conversions, and investment choices creates an income plan that fits your lifestyle while managing the long-term tax impact of decisions like when to claim Social Security, how to handle RMDs, and which accounts to draw from first.
The right plan also ties withdrawals into larger priorities such as estate planning, healthcare, and preserving wealth for the next generation. If you’re ready to see how a customized tax strategy can help you balance income with tax efficiency, we invite you to schedule an introductory call with our team.
Resources:
- https://states.aarp.org/wisconsin/state-taxes-guide
- https://www.revenue.wi.gov/WisconsinTaxBulletin/230-07-31-WTB.pdf
- https://www.revenue.wi.gov/Pages/FAQS/ise-mkesalestax.aspx#:~:text=If%20a%20transaction%20is%20subject,City%20of%20Milwaukee%20%E2%80%93%202.0%25
- https://www.rocketmortgage.com/learn/property-taxes-by-state
- https://www.revenue.wi.gov/DOR%20Publications/pb126.pdf
- https://taxfoundation.org/data/all/state/state-income-tax-rates/
- https://www.revenue.wi.gov/DORReports/17sumrpt.pdf
