Retirement changes a lot about your finances—including your taxes.

Your paycheck may disappear, but your tax bill doesn’t necessarily disappear with it.

Instead of receiving most of your income from an employer, you may begin pulling money from several different sources:

• Social Security
• Traditional IRAs
• 401(k)s and 403(b)s
• Roth IRAs
• Pensions
• Brokerage accounts
• Savings accounts
• Annuities
• Rental properties
• Part-time work

And each source can receive different tax treatment.

That’s why one of the most important tax questions when approaching retirement isn’t simply:

“How much income will I have?”

It’s:

“Where will my income come from, and how will each source be taxed?”

For Wisconsin retirees, understanding both federal and Wisconsin tax rules can help prevent surprises and create opportunities for better tax planning.

Is Social Security Taxable in Wisconsin?

Let’s start with some good news for Wisconsin retirees.

Wisconsin generally does not tax Social Security benefits.

However, that doesn’t necessarily mean your Social Security is completely tax-free.

At the federal level, a portion of your Social Security benefits may be taxable depending on your income.

The calculation considers what’s known as your combined income, which generally includes your adjusted gross income, tax-exempt interest, and a portion of your Social Security benefits.

Depending on your circumstances, up to 85% of your Social Security benefits can be included in federal taxable income.

That does not mean there’s an 85% Social Security tax rate. It means as much as 85% of the benefit may become taxable income.

That’s an important distinction.

Are IRA Withdrawals Taxable in Wisconsin?

For many retirees, traditional IRA withdrawals are generally subject to federal income tax.

They may also be taxable by Wisconsin.

If you previously received a tax deduction for contributions or contributed pre-tax money to a retirement account, distributions generally create taxable income when the money comes out.

For example, suppose you withdraw:

$50,000 from a traditional IRA.

Depending on your circumstances, most or all of that $50,000 could potentially be included in taxable income.

That’s one reason the size of your retirement account doesn’t tell the whole story.

A $1 million traditional IRA and a $1 million Roth IRA can have very different tax characteristics.

What About 401(k) Withdrawals?

Traditional 401(k) distributions generally work similarly.

Money contributed pre-tax generally becomes taxable income when distributed.

So if your retirement spending requires significant withdrawals from traditional retirement accounts, your taxable income may remain substantial even though you’re no longer receiving a paycheck.

This becomes especially important when deciding which accounts to use for retirement expenses.

Are Roth IRA Withdrawals Taxable?

Roth accounts can work very differently.

Qualified Roth IRA distributions are generally federal income-tax-free.

That can make Roth assets particularly useful when managing taxable income in retirement.

Imagine you need an additional $30,000 for a major expense.

Taking that money from a traditional IRA could increase taxable income.

A qualified withdrawal from a Roth IRA may not.

That doesn’t automatically mean the Roth should always be used first. It means retirees with different types of accounts may have more flexibility when deciding how to fund their spending.

Are Pensions Taxable in Wisconsin?

Pension taxation can be more complicated.

At the federal level, pension income is generally taxable to the extent it represents taxable distributions.

Wisconsin treatment can depend on the type of pension and the circumstances.

Certain retirement benefits may qualify for specific Wisconsin exclusions, while others remain taxable.

If you receive pension income, don’t assume its tax treatment is identical to Social Security simply because both are retirement income.

Review the specific pension before making tax projections.

What About Investment Income?

Retirement doesn’t necessarily mean you’re living entirely from retirement accounts.

Many retirees also have taxable brokerage accounts.

Those accounts can generate:

• Interest
• Dividends
• Capital gains
• Capital losses

Each can receive different tax treatment.

Interest

Interest from savings accounts, CDs, and many bonds is generally taxable income.

Dividends

Dividends may receive different tax treatment depending on whether they’re classified as qualified or nonqualified.

Capital Gains

When you sell an investment for more than its cost basis, you may realize a capital gain.

The tax treatment can depend partly on how long you owned the investment.

This creates planning opportunities because withdrawing $20,000 from a traditional IRA and selling $20,000 of investments from a brokerage account don’t necessarily produce the same amount of taxable income.

Required Minimum Distributions Can Change the Picture

Eventually, many owners of traditional retirement accounts are required to begin taking required minimum distributions, commonly called RMDs.

RMDs can create taxable income whether you need the money for spending or not.

Imagine you’ve reached the applicable RMD age and your retirement accounts require you to distribute a significant amount during the year.

That additional taxable income could potentially affect more than just your income-tax bill.

It can interact with other parts of your financial life.

This is one reason tax planning before RMDs begin can be valuable.

Retirement Can Create a Tax-Planning Window

For some people, the years immediately after retiring can create an unusual opportunity.

Consider someone who:

• Retires at 62
• Stops receiving a large salary
• Has substantial traditional IRA assets
• Delays Social Security
• Hasn’t reached RMD age yet

Their taxable income could temporarily fall considerably.

That period between retirement and the start of other income sources may create opportunities worth evaluating.

One of the most common is a Roth conversion.

Should You Do Roth Conversions After Retiring?

A Roth conversion involves moving money from a traditional retirement account into a Roth account.

The converted amount generally creates taxable income in the year of conversion.

Why would someone voluntarily create taxable income?

Because paying some tax today may potentially reduce taxable retirement-account balances and future taxable distributions.

For example, suppose you retire and find yourself in a lower tax bracket than you were in while working.

Instead of allowing unused space in that bracket to disappear at year-end, you might evaluate whether converting some traditional IRA assets makes sense.

But Roth conversions aren’t automatically beneficial.

You need to consider factors such as:

• Current tax rate
• Expected future tax rates
• Future RMDs
• Social Security
• Medicare
• Other income
• Investment growth
• Estate goals
• How you’ll pay the conversion tax

The appropriate conversion amount can be just as important as deciding whether to convert at all.

Medicare Can Make Tax Planning More Important

Income in retirement can also affect Medicare costs.

Higher income can cause some Medicare beneficiaries to pay additional premiums through Income-Related Monthly Adjustment Amounts, commonly called IRMAA.

This creates another reason to look beyond your basic income-tax bracket.

A large Roth conversion, capital gain, or retirement-account distribution could potentially increase income enough to affect future Medicare premiums.

That doesn’t necessarily mean you shouldn’t take the income.

It means the additional cost should be considered when evaluating the decision.

Charitable Giving Can Work Differently in Retirement

Charitably inclined retirees may have additional planning options.

One important example is the Qualified Charitable Distribution, or QCD.

Eligible IRA owners may be able to transfer money directly from an IRA to a qualifying charity, subject to applicable rules and annual limits.

A properly executed QCD can potentially satisfy some or all of an RMD without requiring the distributed amount to be included in income in the same manner as a normal taxable IRA distribution.

For someone who already intends to give to charity, that’s worth evaluating.

Your Withholding May Need to Change

During your working years, your employer probably handled much of your tax withholding.

Retirement can change that.

Taxes might need to be withheld from:

• Pension payments
• IRA distributions
• Social Security benefits

Or you may need to make estimated tax payments.

One of the easiest ways to create a retirement tax surprise is to begin receiving income from several sources without considering how the resulting tax bill will be paid.

An Example: $100,000 of Retirement Income Isn’t Always $100,000 of Taxable Income

Consider two hypothetical Wisconsin retirees who each have $100,000 available to spend.

Retiree A

Receives:

• $40,000 Social Security
• $60,000 traditional IRA distributions

Retiree B

Receives:

• $40,000 Social Security
• $30,000 qualified Roth withdrawals
• $30,000 from a taxable brokerage account

Both have $100,000 available.

But their taxable income could be very different.

That’s why retirement tax planning isn’t simply about how much you withdraw.

It’s also about where the money comes from.

Wisconsin Taxes Matter Too

Federal taxes receive most of the attention, but Wisconsin retirees need to consider state taxes as well.

Wisconsin’s treatment of Social Security is a good example of how state and federal tax rules can differ.

Your retirement income might include sources that are:

• Taxable federally and in Wisconsin
• Taxable federally but not in Wisconsin
• Tax-free under certain circumstances
• Partially taxable
• Subject to special rules

If you’re building a retirement-income plan based solely on federal tax calculations, you may be missing part of the picture.

Don’t Wait Until You File Your Taxes

Tax preparation happens after the year is over.

By then, your:

• IRA withdrawals have happened
• Roth conversions have happened—or didn’t happen
• Investments have been sold
• Charitable gifts have been made
• RMD deadline has passed
• Income has been realized

Your tax preparer can accurately report those decisions.

But they can’t necessarily go back and change them.

Tax planning happens before those decisions become permanent.

That’s particularly important in retirement because you may have more control over your taxable income than you did while working.

7 Tax Questions to Ask Before You Retire

Before leaving your job, consider answering these questions:

1. Which of my retirement income sources will be taxable?
2. How will Wisconsin tax my retirement income?
3. When should I claim Social Security?
4. Which accounts should I withdraw from first?
5. Should I consider Roth conversions?
6. When will required minimum distributions affect me?
7. How will I pay taxes once paycheck withholding stops?

You don’t necessarily need the perfect answer to every question before retiring.

But you should know which questions matter.

Retirement Tax Planning in Wisconsin

Retirement can give you more control over your income—but that can also make your tax situation more complicated.

At La Crosse Tax, we help Wisconsin taxpayers understand how their retirement income fits together from a tax perspective.

Whether you’re approaching retirement or already retired, proactive tax planning can help you understand the potential consequences of withdrawals, Roth conversions, Social Security, investments, RMDs, and other sources of income before the year is over.