Wisconsin state tax on IRA distributions

Updated: July 28, 2026

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A Wisconsin resident who takes a traditional IRA distribution before age 59 and a half faces three layers of tax. First comes federal ordinary income tax at the household marginal bracket. Next is the federal 10 percent additional tax under IRC Section 72(t), absent an exception. Then Wisconsin state income tax applies to the same distribution.

On top of that sits a Wisconsin state-level mini-penalty of 33 percent of the federal Section 72(t) tax, under Wisconsin Statute 71.83(1)(b)6.

See the dealers OPRS clears and the ones we warn against before any distribution from a self-directed gold IRA. The custodian capability to code the Form 1099-R distribution exception correctly is the operational gate that determines whether the Wisconsin 33 percent mini-penalty is waived in parallel with the federal 10 percent.

Element I is the baseline Wisconsin treatment: federal AGI flows through, the taxable portion of the IRA distribution is taxed at Wisconsin marginal rates. Element II is the age-based retirement income subtractions, including the new 2023 Wisconsin Act 19 exclusion that took effect for tax year 2025.

Element III is the Wisconsin 33 percent mini-penalty under Statute 71.83(1)(b)6 and how the federal Section 72(t) exceptions cascade through. Element IV is the residency and sourcing question that applies when the participant relocates out of Wisconsin before or after the distribution.

The four elements work together; missing any one of them inflates the state-tax bill on a routine traditional IRA distribution.

How Wisconsin taxes traditional IRA distributions: the baseline rule

Wisconsin individual income tax begins with federal adjusted gross income as reported on Form 1040 line 11. Wisconsin Form 1 line 1 carries that figure forward. Additions and subtractions are made on Wisconsin Schedule AD and Schedule SB to arrive at Wisconsin taxable income.

The taxable portion of a traditional IRA distribution (Form 1099-R box 2a) is included in federal AGI and therefore in Wisconsin taxable income by default. No separate basis recovery is required on the Wisconsin side; the basis math is resolved at the federal level under IRC Section 72 and the simplified general rule in IRS Form 8606.

Wisconsin applies a four-bracket schedule to individual income, with marginal rates ranging from 3.50 percent at the lowest bracket up to 7.65 percent at the top bracket for tax year 2025.

For a Frank-profile household, the effective Wisconsin marginal rate on incremental traditional IRA distributions typically sits in the 5.30 percent or 6.27 percent band. That profile is a retired police lieutenant in his mid-50s with a Wisconsin Retirement System pension already in pay status, a separate governmental 457(b), and modest S-corp income.

The Wisconsin Department of Revenue publishes the bracket schedule annually in the Tax Rates and Tax Tables reference and reproduces it in the Wisconsin Form 1 instructions.

A Roth IRA qualified distribution is federally tax-free and therefore Wisconsin tax-free. The five-year period must be satisfied and the participant must be age 59 and a half or older, or another qualifying event must apply.

A non-qualified Roth distribution is subject to federal income tax on the earnings portion only, under the basis ordering rules at IRC Section 408A(d). That taxable earnings portion flows through to Wisconsin the same way a traditional IRA distribution does.

The age-based retirement income subtractions: $5,000 at 65 and $24,000 / $48,000 at 67+

Wisconsin offers two distinct age-based subtractions that can offset all or part of a traditional IRA distribution at the state level.

The first is the long-standing $5,000 retirement income subtraction at Wisconsin Statute 71.05(6)(b)4. A taxpayer who has reached age 65 by the close of the tax year may subtract up to $5,000 of qualified retirement income from Wisconsin taxable income. The federal adjusted gross income must be less than $15,000 for single filers, or less than $30,000 for joint filers.

Qualified retirement income includes traditional IRA distributions, qualified plan distributions, and most pension income. The subtraction is capped at the lesser of $5,000 or the actual qualifying retirement income received in the year.

The narrow AGI ceiling (under $15,000 single, under $30,000 joint) means this subtraction primarily benefits lower-income retirees living on Social Security plus a small pension or modest IRA withdrawals. The Wisconsin Department of Revenue confirms the eligibility rules in Publication 126, How Your Retirement Benefits Are Taxed.

The second is the new retirement income exclusion enacted under 2023 Wisconsin Act 19, signed into law in July 2023 and effective for tax years beginning on or after January 1, 2025.

Act 19 created a new Wisconsin Statute 71.05(6)(b)55. It permits a taxpayer age 67 or older at the close of the tax year to subtract qualified retirement income from Wisconsin taxable income. The subtraction limit is $24,000 for a single return and $48,000 for a joint return.

The exclusion is not subject to the under-$15,000 / under-$30,000 AGI cap that constrains the older $5,000 subtraction. Qualified retirement income under the Act 19 exclusion includes traditional IRA distributions, qualified plan distributions, Section 457(b) distributions, and pensions.

The Act 19 exclusion is the single largest Wisconsin state-tax change for retirees in the past two decades. For a Frank-profile household that reaches age 67 with $40,000 to $60,000 of annual IRA distributions plus pension, the exclusion can wipe out the Wisconsin state tax on a substantial portion of that income.

The third reduction is a narrow but valuable carve-out: distributions attributable to service in specific Wisconsin retirement systems with continuous membership before January 1, 1964, remain Wisconsin tax-exempt for life under Wisconsin Statute 71.05(1)(a)3.

The systems covered include the Milwaukee Public School Teachers’ Retirement System, the Milwaukee City and County employee retirement systems, the Milwaukee Police and Fire Departments’ retirement systems, and certain other narrowly defined Wisconsin public systems.

The pre-1964 exemption applies to distributions of contributions made before January 1, 1964, and to the proportional share of plan earnings attributable to that protected service. The Wisconsin Department of Revenue maintains a list of covered systems in Publication 126.

Wisconsin’s 33 percent mini-penalty on early IRA distributions

Wisconsin parallels the federal early-distribution penalty under IRC Section 72(t) with a state-level mini-penalty equal to 33 percent of the federal additional tax. The state mini-penalty is codified at Wisconsin Statute 71.83(1)(b)6.

Mechanically: if the federal Section 72(t) 10 percent additional tax applies to a distribution, Wisconsin imposes an additional state tax equal to 33 percent of that federal 10 percent figure.

On a $20,000 early traditional IRA distribution with no federal exception applicable, the federal additional tax is $2,000 (10 percent of $20,000); the Wisconsin mini-penalty is $660 (33 percent of $2,000). The effective combined state plus federal penalty on the early distribution is therefore 13.3 percent of the gross distribution.

Three rules govern the Wisconsin mini-penalty, and the cascading mechanism is the one that matters most. Because the Wisconsin 33 percent mini-penalty is computed as a percentage of the federal Section 72(t) additional tax, any federal exception that waives the federal 10 percent tax also waives the Wisconsin mini-penalty. The Wisconsin penalty falls away in parallel, with no separate Wisconsin-level documentation or election required. The Wisconsin Form 1 instructions and Publication 126 confirm this treatment.

PSO age-50 exception cascades to the Wisconsin mini-penalty waiver

A retired Wisconsin police officer, firefighter, county sheriff’s deputy, state trooper, or corrections officer who separated from qualifying service in or after the year of age 50 is a qualified public safety officer. That status is defined under IRC Section 72(t)(10).

The Section 72(t)(2)(A)(v) age-50 exception waives the federal 10 percent additional tax on distributions from the participant’s qualified retirement plan. That typically means the Wisconsin Retirement System protective category and, after rollover, an IRA or self-directed gold IRA.

SECURE Act 2.0 expanded the qualified public safety officer category to include private-sector firefighters and certain forensic security employees.

Because the Wisconsin 33 percent mini-penalty under Statute 71.83(1)(b)6 is calculated as a percentage of the federal Section 72(t) additional tax, the PSO age-50 exception waives the Wisconsin mini-penalty in parallel.

Here is the math for a separated Wisconsin protective-occupation participant at age 52 taking a $30,000 distribution to fund pre-Medicare healthcare premiums or bridge spending. Federal income tax at 22 percent applies to the distribution, which is $6,600. The federal Section 72(t) additional tax is waived by the PSO exception, so that is $0.

Wisconsin state income tax at the 5.30 percent marginal bracket comes to $1,590. The Wisconsin 33 percent mini-penalty is also waived in parallel, so that is $0.

The structural saving versus the no-exception scenario is $3,000 in federal penalty plus $990 in Wisconsin mini-penalty on the same $30,000 distribution. The savings recur on every PSO-eligible distribution between separation (in or after age 50) and age 59 and a half.

The operational gate is the IRA custodian’s Form 1099-R coding at distribution. For a rolled-over balance in a self-directed gold IRA, the custodian must code the distribution with exception code 2 (early distribution, exception applies). Separation date, employer documentation, and PSO classification must all be on file.

A coding error gets the distribution treated as a code 1 early distribution, with the 10 percent penalty applied. The participant can recover federally by filing Form 5329 to claim the exception. The Wisconsin Department of Revenue then reads the federal Form 5329 outcome on Wisconsin Form 1.

Check this dealer against the 2026 OPRS list for distribution-service capability before committing a rolled balance to any custodian.

Side-by-side specs: Wisconsin tax treatment of IRA distribution components

The table below maps the seven Wisconsin treatment items that apply to a typical traditional IRA distribution. The Status column flags the practical impact at the Frank-profile income level (single retiree, federal AGI in the $80,000 to $120,000 band, marginal Wisconsin bracket around 5.30 percent or 6.27 percent).

The numbers: Wisconsin state tax on a $20,000 IRA distribution at three age bands

The chart below shows the Wisconsin state tax on a $20,000 traditional IRA distribution for a single Wisconsin resident filer across three age bands. Those bands are: under 65, age 65 to 66 with AGI below the low-income cap, and age 67 or older starting in tax year 2025 under 2023 Wisconsin Act 19. Federal tax and any federal Section 72(t) penalty are excluded from these figures.

The marginal Wisconsin bracket assumption is 5.30 percent for the under-65 case and the age 65 to 66 case, applied to the post-subtraction taxable amount.

The under-65 case costs roughly $1,100 in Wisconsin state tax: 5.30 percent applied to the full $20,000 distribution, with no state-level subtraction available because the participant has not yet reached age 65. The age 65 to 66 case at low AGI costs approximately $795: 5.30 percent applied to $15,000 after the $5,000 retirement income subtraction.

The age 67+ case starting in tax year 2025 costs approximately $0 in Wisconsin state tax: the full $20,000 distribution falls within the new $24,000 exclusion under 2023 Wisconsin Act 19.

The structural lesson is clear. The Wisconsin tax cost on retirement-age IRA distributions drops dramatically at age 67, starting in 2025. Household tax planning should weight the timing of meaningful traditional IRA distributions toward the post-age-67 window when other constraints permit.

The decision sequence: how a Wisconsin resident applies the rules

The five-step sequence below is the procedural framework most Wisconsin residents and former residents can apply to a traditional IRA distribution without external counsel for the first pass. Counsel involvement becomes useful at step 4 when the Wisconsin Act 19 exclusion stacks against a sizable distribution at the household income level.

Step 1. Confirm Wisconsin residency at the moment of distribution. Wisconsin Statute 71.04 sources individual income by residency status. A full-year Wisconsin resident is taxed on all retirement distributions regardless of where the contributions were made. A part-year resident apportions by residency period.

A full-year nonresident at distribution generally owes no Wisconsin state tax on a traditional IRA distribution, even on contributions made during prior Wisconsin residency. The federal Pension Source Tax Act of 1996 (4 U.S.C. Section 114) prohibits a former state of residence from taxing retirement income paid to a nonresident, codifying the no-tax outcome for the relocated retiree.

Step 2. Identify the source of the IRA dollars. Contributions and earnings are fully taxable as Wisconsin income, with one specific carve-out. Interest on direct United States government securities held inside the IRA is subtracted on Wisconsin Schedule SB, line 11. That subtraction flows from Wisconsin Statute 71.05(1)(a)1 and the supremacy-clause federal preemption at 31 U.S.C. Section 3124.

The carve-out applies to interest on direct Treasury obligations (bills, notes, bonds, Treasury Inflation-Protected Securities) but not to interest on Treasury mutual funds or ETFs that are intermediated through a regulated investment company.

Step 3. Check for the pre-1964 protected-service exemption. If the participant held continuous membership before January 1, 1964, in a specifically covered Wisconsin retirement system, distributions attributable to that protected service remain Wisconsin tax-exempt for life under Wisconsin Statute 71.05(1)(a)3. Covered systems include Milwaukee Police, Milwaukee Fire, Milwaukee Public School Teachers, and certain other narrow systems.

The exemption applies to a small and shrinking population of older retirees, but for those it covers it is structurally valuable.

Step 4. Apply the age-based retirement income subtractions. At age 65 to 66 with single AGI under $15,000 or joint AGI under $30,000, subtract up to $5,000 of qualified retirement income on Schedule SB.

At age 67 or older starting in tax year 2025, subtract up to $24,000 single or $48,000 joint of qualified retirement income under 2023 Wisconsin Act 19 (Wisconsin Statute 71.05(6)(b)55). The subtractions stack against the taxable IRA distribution amount and reduce Wisconsin taxable income at the household marginal bracket.

Step 5. Apply the Wisconsin 33 percent mini-penalty under Statute 71.83(1)(b)6. If the distribution triggered the federal 10 percent additional tax under IRC Section 72(t), Wisconsin imposes an additional state tax equal to 33 percent of the federal penalty. If a federal Section 72(t) exception applied at the federal level (PSO age-50, SEPP, first-home, higher education, disability), the Wisconsin mini-penalty is waived in parallel. The exception flows through automatically; no separate Wisconsin-level election is required.

Verdict per household profile

Profile A: separated protective-occupation Wisconsin retiree age 50 to 58, WRS pension in pay status, $200,000 to $400,000 in a separate governmental 457(b) or rolled IRA, pre-59-and-a-half distribution planned of $20,000 to $40,000 per year. The PSO age-50 exception under IRC Section 72(t)(2)(A)(v) waives the federal 10 percent penalty and cascades through to waive the Wisconsin 33 percent mini-penalty.

The state-tax cost is the Wisconsin marginal rate applied to the distribution. The rate falls in the 5.30 percent or 6.27 percent band depending on income. No age-based subtraction is available until age 65 to 66, and even then the AGI cap constrains it.

The household has roughly nine to fifteen years of Wisconsin state-tax cost before the 2023 Wisconsin Act 19 exclusion at age 67 cuts in.

Profile B: Wisconsin retiree age 65 to 66, federal AGI $80,000 to $120,000, traditional IRA distributions of $20,000 to $40,000 per year. The $5,000 retirement income subtraction is unavailable (AGI exceeds the $15,000 single / $30,000 joint cap). The 2023 Wisconsin Act 19 exclusion is unavailable until age 67.

The state-tax cost is the Wisconsin marginal rate applied to the full distribution. Tax-planning opportunity: bunching meaningful traditional IRA distributions toward the year of age 67 (and beyond) captures the new $24,000 / $48,000 exclusion against the same dollars.

Profile C: Wisconsin retiree age 67 or older starting in tax year 2025, federal AGI $80,000 to $150,000. The 2023 Wisconsin Act 19 retirement income exclusion is the operative rule. Up to $24,000 (single) or $48,000 (joint) of qualified retirement income (including traditional IRA distributions) is subtracted from Wisconsin taxable income with no AGI cap.

For a typical single retiree withdrawing $20,000 to $25,000 per year from a traditional IRA, the exclusion zeros out the Wisconsin state tax on the distribution. For a joint-return household withdrawing $40,000 to $50,000 per year, the exclusion zeros out or substantially offsets the state tax.

Profile D: former Wisconsin resident who has permanently relocated out of state before distribution. Wisconsin generally cannot tax the IRA distribution at the state level. The federal Pension Source Tax Act of 1996 prohibits the former state of residence from taxing retirement income paid to a nonresident.

Documentation matters here. The participant should ensure the residency change is reflected in the IRA custodian’s address of record and in federal Form W-4P or W-4R withholding elections. State income-tax filings in both the new and former state for the year of the move must also reflect the change.

When this state-tax framing is wrong

The Wisconsin state-tax framing is incomplete when the participant is in fact a nonresident of Wisconsin at distribution but the IRA custodian withholds Wisconsin state tax anyway because the address of record was not updated.

The custodian’s withholding does not change the underlying state-tax liability; the participant recovers the overwithholding by filing a Wisconsin Form 1NPR (nonresident return) for the year of the distribution and claiming the refund. The cleaner path is to update the IRA custodian’s address of record and W-4R election before the distribution clears.

The framing is also wrong when the household assumes the 2023 Wisconsin Act 19 exclusion applies before age 67. The statute is explicit: the exclusion applies only for the tax year in which the participant reaches age 67 by the close of the year and later.

A participant turning 67 in November of a tax year qualifies for the full $24,000 / $48,000 exclusion in that tax year, not a prorated amount. A participant who turns 67 on January 2 of a tax year does not qualify until the following tax year because the age-67 milestone falls outside the calendar year window.

The framing is wrong when the IRA holds significant interest on direct Treasury obligations but the Wisconsin Schedule SB line 11 subtraction is not claimed. The custodian’s Form 1099-R does not break out the Treasury-interest component; the participant or preparer reconstructs that figure from the IRA’s investment statements and claims the subtraction on Schedule SB.

The carve-out is permanent and structural; missing it is a recurring annual overpayment of Wisconsin state tax. A dealer that surfaces these state-tax line items in pre-distribution planning is doing meaningful work; one that does not is leaving real Wisconsin state-tax dollars on the table for the participant’s household.

Where Augusta sits in the dealer landscape for Wisconsin distributions

Augusta Precious Metals sits on the OPRS three-dealer shortlist.

Four public trust-signal markers are what our desk verifies for any dealer in the precious metals IRA cluster. The first two are Money Magazine Best Overall Gold IRA Company (2022 to 2026) and Investopedia Most Transparent Gold IRA Company (2022 to 2026). The third is BBB A+ Rating with Zero Complaints (accredited since 2014). The fourth is 4,000-plus 5-star ratings aggregated across Trustpilot, Google, and Consumer Affairs.

Augusta’s industry-reported minimum sits around $50,000, which fits a Wisconsin retiree with a $200,000-plus 457(b) balance plus a rollover-eligible WRS additional contributions account. The published Learn-Talk-Decide process, run by salaried non-commissioned educators, fits the Wisconsin protective-occupation retiree at age 50 to 58 evaluating the PSO age-50 federal exception against the Wisconsin 33 percent mini-penalty cascade.

The dealer’s distribution-service infrastructure is the operational gate that determines whether a Form 1099-R is coded correctly for the exception, which in turn determines whether the Wisconsin mini-penalty is waived in parallel.

Does Wisconsin tax traditional IRA distributions the same way the federal government does?

Largely yes, at the income-tax-base level. Wisconsin individual income tax uses federal adjusted gross income as the starting point on Wisconsin Form 1 line 1. The taxable portion of a traditional IRA distribution that flows into federal AGI flows through to Wisconsin taxable income by default.

Wisconsin then applies its own four-bracket schedule (3.50 percent to 7.65 percent for tax year 2025) and its own subtractions on Schedule SB. The base is the same; the rate schedule and the subtractions are Wisconsin-specific. Wisconsin Department of Revenue Publication 126 is the authoritative reference.

How does Wisconsin’s 33 percent mini-penalty interact with the federal 10 percent early-distribution tax?

Wisconsin Statute 71.83(1)(b)6 imposes an additional state tax equal to 33 percent of the federal Section 72(t) 10 percent early-distribution tax. On a $20,000 early IRA distribution with no federal exception, the federal additional tax is $2,000. The Wisconsin mini-penalty is $660. Together, the combined state plus federal penalty is $2,660, or 13.3 percent of the gross distribution.

If a federal Section 72(t) exception applies, the Wisconsin mini-penalty is waived in parallel. That is because the penalty is computed as a percentage of the federal additional tax, so when the federal tax goes to zero, the state penalty follows. Qualifying exceptions include PSO age-50, SEPP, first-home, disability, higher education, and medical expenses above the AGI floor. No separate Wisconsin-level election is required.

Does the 2023 Wisconsin Act 19 $24,000 / $48,000 exclusion apply to all retirement income or only to pensions?

The exclusion applies broadly to qualified retirement income, which the statute defines to include traditional IRA distributions, qualified plan distributions (401(k), 403(b), governmental 457(b)), and most pensions. Roth IRA qualified distributions are already federally tax-free and therefore Wisconsin tax-free without using the Act 19 exclusion.

The exclusion caps at $24,000 for a single filer and $48,000 for a joint return per tax year. It applies only to taxpayers who have reached age 67 by the close of the tax year. Tax-planning opportunity: a Wisconsin household nearing age 67 can defer meaningful traditional IRA distributions into the post-67 window to capture the exclusion against those dollars.

If a Wisconsin retiree moves to Florida and then takes an IRA distribution, does Wisconsin still tax it?

Generally no. Under the federal Pension Source Tax Act of 1996 (4 U.S.C. Section 114), a state of former residence is prohibited from taxing retirement income (including traditional IRA distributions) paid to an individual who is no longer a resident of that state.

The participant becomes a Florida resident for tax purposes upon establishing domicile in Florida (typically: physical presence, intent to make Florida the permanent home, and updating driver’s license, voter registration, and other indicia). Once nonresident status is established, distributions are not subject to Wisconsin income tax.

Documentation discipline matters: update the IRA custodian’s address of record and W-4R / W-4P withholding elections to Florida; file a final Wisconsin Form 1 for the part-year residency period in the year of the move.

Does the IRA-side interest on direct Treasury obligations get the Wisconsin state-tax carve-out?

Yes, but the participant or preparer must reconstruct the Treasury-interest figure from the IRA’s investment statements and claim the subtraction on Wisconsin Schedule SB, line 11. Under Wisconsin Statute 71.05(1)(a)1 and the federal supremacy-clause protection at 31 U.S.C. Section 3124, interest on direct United States Treasury obligations held inside a Wisconsin resident’s IRA is subtracted from Wisconsin taxable income.

The carve-out applies to bills, notes, bonds, and Treasury Inflation-Protected Securities held in direct ownership inside the IRA. It does not apply to Treasury mutual funds or ETFs that are intermediated through a regulated investment company; that interest is taxed at the Wisconsin level despite the underlying Treasury exposure.

Sources cited

1. Wisconsin Department of Revenue, Publication 126: How Your Retirement Benefits Are Taxed (1/26)
2. 2023 Wisconsin Act 19, Retirement Income Exclusion at Age 67
3. Wisconsin Statute 71.05, Income Tax Computation: Additions and Subtractions
4. Wisconsin Statute 71.04, Situs of Income and Allocation
5. Wisconsin Statute 71.83, Penalties: 33% State Additional Tax on Section 72(t) Distributions
6. IRC Section 72, Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
7. IRC Section 72(t), Additional Tax on Early Distributions from Qualified Retirement Plans
8. IRC Section 72(t)(10), Qualified Public Safety Officer Age-50 Exception
9. IRC Section 408A, Roth IRA Distribution Rules
10. 4 U.S.C. Section 114, Pension Source Tax Act of 1996
11. 31 U.S.C. Section 3124, Exemption from State Taxation of Direct US Government Obligations
12. IRS Publication 590-B, Distributions from Individual Retirement Arrangements
13. Wisconsin Department of Revenue, Tax Rates and Tax Tables

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