Wisconsin State Tax on 401(k) Withdrawals: Rates, Subtractions, and RMDs

Wisconsin state tax on 401(k) withdrawals applies to traditional pre-tax distributions as ordinary income, with rates running from 3.50% to 7.65% depending on your total taxable income. A 2025 law change now lets retirees who are at least 67 subtract up to $24,000 of qualified retirement income from the state return, or $48,000 for a married couple where both spouses qualify. Qualified Roth 401(k) distributions aren’t taxed by Wisconsin at all.

How the Withdrawal Flows Onto Your Wisconsin Return

Wisconsin starts its income tax calculation from your federal adjusted gross income.¹ A traditional 401(k) withdrawal that is taxable federally lands in your Wisconsin taxable income automatically, before the state applies its own subtractions, deductions, and rate schedule.

The state’s four brackets run 3.50%, 4.40%, 5.30%, and 7.65%. For 2025, a single filer reaches the top 7.65% rate above $323,290 of taxable income, and a married couple filing jointly reaches it above $431,060.² A sizable one-time withdrawal stacked on top of a pension, part-time wages, or investment income can move you into a higher bracket than your paycheck years ever did. Brackets adjust for inflation each year.

Roth 401(k) distributions are the main exception. Because you paid tax on the contributions, a qualified Roth distribution is excluded from federal AGI and therefore from Wisconsin income as well.³ A distribution qualifies once it has been at least five years since your first Roth 401(k) contribution and you are 59½, disabled, or the funds are going to a beneficiary after your death.⁴

The 2025 Subtraction for Retirees Age 67 and Older

Starting with the 2025 tax year, Wisconsin lets a retiree who is at least 67 by year-end subtract up to $24,000 of qualified retirement income from state taxable income. Married couples filing jointly where both spouses are 67 or older can subtract up to $48,000 combined.⁵ The subtraction covers distributions from 401(k) plans, IRAs, and other qualified retirement accounts, and there is no federal AGI cap. A retiree pulling $80,000 from a 401(k) can still claim it in full.⁶

There is a real tradeoff. If you claim this expanded subtraction, you forfeit every Wisconsin income tax credit for that same tax year.⁵ That includes the married couple credit, the itemized deduction credit, and the school property tax credit. For most retirees the subtraction saves more than the lost credits, but run both scenarios before you file.

The subtraction is claimed on Schedule SB, which carries the adjusted figure into Form 1.⁷

The Older $5,000 Subtraction for Age 65 and Older

Wisconsin’s original retirement income subtraction still exists for taxpayers who don’t yet qualify for the expanded version. It allows up to $5,000 per qualifying individual, or $10,000 for a married couple where both spouses qualify, against distributions from 401(k) plans, IRAs, and similar accounts.¹

Eligibility is tight. You must be 65 or older by year-end, and your federal AGI must be below $15,000 if single or below $30,000 if married.⁶ Most retirees with meaningful 401(k) balances exceed those AGI limits. If you’re 67 or older and eligible for the expanded subtraction, that version almost always produces a lower bill.

Social Security Doesn’t Count Against You

Wisconsin does not tax Social Security benefits.⁶ For bracket-planning purposes, that means your Social Security income doesn’t inflate your Wisconsin taxable income or push your 401(k) withdrawal into a higher state rate. Only the 401(k) distribution and your other non-exempt income determine which bracket you land in on the state return.

Withdrawals Before Age 59½

Pull money from a traditional 401(k) before 59½ and you owe a 10% federal penalty on the taxable portion, on top of ordinary income tax.⁸ Wisconsin does not add a separate state early-withdrawal penalty, but the distribution still enters your Wisconsin taxable income at your normal rate.

Several situations eliminate the federal 10% penalty:

Separation from service in or after the year you turn 55, from that employer’s plan. Public safety employees of state and local governments qualify at 50.⁸
Total and permanent disability, or distributions to a beneficiary after the account owner’s death.
A series of substantially equal periodic payments based on your life expectancy.
Unreimbursed medical expenses above 7.5% of your AGI.
Payments to an ex-spouse or dependent under a qualified domestic relations order.
Up to $22,000 for qualified individuals affected by a federally declared disaster.
Up to $5,000 per child for qualified birth or adoption expenses.

An exception removes the penalty, not the tax. The distribution is still ordinary income on both returns unless you roll it to another qualified account within 60 days.

Required Minimum Distributions at 73

Federal law requires you to begin taking withdrawals from a traditional 401(k) at age 73.⁹ If you’re still working and own less than 5% of the sponsoring company, you can delay RMDs from that employer’s plan until you actually retire. Each RMD is taxable federally and in Wisconsin.

Missing an RMD triggers a 25% federal excise tax on the shortfall, dropping to 10% if you correct the mistake within two years.⁹ It’s an easy penalty to trigger in the year you turn 73 or when you juggle multiple accounts.

Inherited 401(k) Accounts

Distributions from an inherited traditional 401(k) are taxable to the beneficiary, both federally and in Wisconsin, reported the same way the original owner would have reported them.¹⁰

Your relationship to the deceased sets the payout timeline:

A surviving spouse can roll the account into their own IRA or take distributions over their life expectancy.
An eligible designated beneficiary (a minor child of the deceased, a disabled or chronically ill person, or someone no more than 10 years younger than the deceased) can stretch distributions over their life expectancy.
Most other adult beneficiaries must empty the account by the end of the 10th year after the year of death.¹⁰

The 10-year rule leaves room to plan. You aren’t required to take equal annual amounts, so spreading withdrawals across all ten years rather than taking one lump sum keeps more of the income in Wisconsin’s lower brackets.

If You Move Into or Out of Wisconsin

Residency on the day you receive the distribution controls which state taxes it. Full-year Wisconsin residents owe Wisconsin tax on every 401(k) withdrawal, regardless of where the money was earned or where the plan is administered. Nonresidents generally owe nothing to Wisconsin on qualified 401(k) distributions, even if the entire balance was built up while working in the state.¹¹

Part-year residents file Form 1NPR and include only the distributions received while they were legally residing in Wisconsin.¹¹ If you’re relocating, the date of the distribution relative to your change in residency can change the state tax entirely. One narrow exception: nonqualified deferred compensation tied to services performed in Wisconsin can still be taxed by the state after you move.

Two Narrower Exemptions Worth Knowing

Military retirement pay from the U.S. military retirement system is fully exempt from Wisconsin tax, with no age or income test. The exemption also covers the Retired Serviceman’s Family Protection Plan, the Survivor Benefit Plan, and retirement pay from the Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration, and the Public Health Service.⁶

Benefits from the Wisconsin Retirement System, certain Milwaukee city and county retirement systems, and the federal Civil Service Retirement System are exempt only if the retiree was a member of the system as of December 31, 1963, and payments come from an account established before that date. Beneficiaries of qualifying members get the exemption too.¹² Membership that started after that date is fully taxable.

Withholding and Estimated Payments

Your plan administrator reports distributions on federal Form 1099-R, showing both gross and taxable amounts.¹³ The taxable figure is your starting point for Wisconsin. Full-year residents file Form 1¹⁴ and attach Schedule SB if claiming any retirement income subtraction.⁷

Large 401(k) withdrawals cause April surprises when nothing was withheld. Wisconsin requires estimated tax payments if you expect to owe $500 or more in net state tax for the year.¹⁵ Underpayment interest accrues at 12% per year, calculated separately for each quarterly installment.¹⁶ The simplest fix is asking your plan administrator to withhold Wisconsin tax directly from each distribution. Most will do it on request, though the default amount is often too low to cover the actual liability on a large withdrawal.

1
Wisconsin State Legislature. Individual Income Tax Informational Paper 2
2
Department Of Revenue. DOR Tax Rates
3
Internal Revenue Service. Retirement Topics – Designated Roth Account
4
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
5
Wisconsin State Legislature. 2025 Wisconsin Act 15
6
Wisconsin Department of Revenue. Wisconsin Tax Information for Retirees – Publication 106
7
Wisconsin Department of Revenue. 2025 Schedule SB Instructions – Subtractions from Income
8
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
9
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
10
Internal Revenue Service. Retirement Topics – Beneficiary
11
Wisconsin Department of Revenue. 2025 Form 1NPR Instructions
12
Department Of Revenue. Individual Income Tax – Retired Persons
13
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
14
Wisconsin Department of Revenue. 2025 Form 1 Instructions
15
Wisconsin State Legislature. Individual Income Tax Estimated Tax Payments – Common Questions
16
Department Of Revenue. DOR Underpayment Interest