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Wisconsin · 401k state-tax

401(k) and retirement accounts in Wisconsin: state deduction and Roth considerations

Traditional 401(k) contributions reduce Wisconsin taxable income today at 7.65% marginal. Roth 401(k) reverses the math. For equity earners, the state-tax dimension often flips the right answer.

What Wisconsin residents actually pay

Wisconsin taxes ordinary income at a top marginal rate of 7.65%. RSU settlement value, NSO exercise spread, and ESPP discount income all count as ordinary wages for this purpose and flow through the state's normal brackets.

30% long-term capital gains deduction.

Traditional 401(k) in Wisconsin

A pre-tax 401(k) contribution reduces both federal and Wisconsin taxable income today. At the top bracket, every $1,000 contributed saves 42.6 cents on the dollar (federal 35% + state 7.65%). At retirement, withdrawals are taxed at your then-current bracket.

Roth 401(k) breakeven

Roth 401(k) contributions are taxed at today's rates; withdrawals are tax-free. The Roth choice beats traditional when your retirement bracket is higher than your contribution bracket. For equity earners in high-income years, traditional is usually right during big RSU years and Roth is right during low-income transition years.

Mega-backdoor Roth

After-tax 401(k) contributions above the standard $23,500 limit can be converted to Roth in plans that allow it. For high earners in Wisconsin, this is the largest tax-advantaged bucket available after the primary 401(k) and IRA caps. Check whether your plan allows after-tax contributions and in-plan Roth conversions.

Frequently asked

Does Wisconsin tax RSU income the same as wages?
Yes. Wisconsin treats RSU ordinary income as wages, taxable at the state's top marginal rate of 7.65%. Supplemental-wage federal withholding (22%, or 37% above $1M YTD) does not adjust for state withholding, so you often owe extra at filing.
What happens if I exercise ISOs while living in Wisconsin?
Wisconsin does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.
I moved to Wisconsin from another state. Who taxes my vesting RSUs?
Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your Wisconsin move, expect the old state to tax the portion of each tranche attributable to workdays earned there. Wisconsin taxes the remainder.
Can I reduce Wisconsin taxes by timing my RSU sales?
Wisconsin gives preferential treatment to long-term capital gains. Holding RSU shares 12+ months past vest can produce both federal and state savings. Weigh concentration risk before using this as a reason to hold.

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