Wisconsin boasts one of the least complicated retirement systems in the country, as essentially all state and local employees fall under the umbrella of the Wisconsin Retirement System (WRS). It has experienced plenty of financial growth over the last few years, which should make participants feel increasingly confident in their retirement. Although your pension will drastically aid you in retirement, you should have separate funds set up to help you stay afloat. For help with your overall retirement plan, you may want to consider working with a financial advisor.
Types of Retirement Systems in Wisconsin
Simplicity is the name of the game when it comes to the retirement systems run through the Wisconsin Department of Employee Trust Funds. This is extremely rare, as most states will utilize anywhere from four to 10 different systems that distinguish between employee type. Because of the widespread nature of these programs, make sure you know exactly where you stand so you know what to expect in retirement.
Wisconsin Retirement Systems
|Plan Title||Eligible Employees|
|Wisconsin Retirement System (WRS)||– Most Wisconsin state public employees|
|Wisconsin Deferred Compensation Program (WDC)||– Current university and state employees|
– Local government and school district employees at participating employers
Overview of Wisconsin’s Retirement Systems
Wisconsin Retirement System: The WRS decides benefits based on the average of your three highest-earning years of employment, your retirement age and your overall years of service. Besides monthly retirement payments, benefits include a minimum retirement age of 55 and possible health, long-term care and disability insurance. Anyone included within the WRS must remain a part of the program throughout the time they are employees of any local or state entities.
Wisconsin Deferred Compensation Program: In addition to the WRS, the WDC offers eligible public employees the chance to increase their retirement savings on their own terms. You can choose to either defer your taxes, or make it a Roth account, which would involve paying the taxes upfront so you can avoid them in retirement.
Retirement Taxes in Wisconsin
Because distributions from retirement accounts become your main source of income, the government will take out a federal income tax on them. You can choose to either pay these through estimated tax payments or withholding installments. Although you have the risk of facing overcharged by withholding, the money will come back to you as a refund. By contrast, a taxpayer must calculate all estimated payments.
As you accrue assets in your pension account, the IRS will allow you to avoid all income taxes, at least until you start taking distributions. This tax-deferred status can be prolonged by rolling over your pension funds into a separate retirement account, like an IRA or 401(k). However, Roth IRAs are not included in this policy, as these after-tax accounts call for tax payments to be made immediately.
Wisconsinites who subscribe to any part of the Wisconsin Retirement System will need to pay state income taxes on part of their retirement benefit. This specifically applies to any pre-tax contributions, including employee-required contributions. Should you contribute any post-tax money to your own account, it will not be taxable under Wisconsin law.
Additionally, part-time residents of Wisconsin will only pay state income taxes while they’re Wisconsin residents. If and when you live in another state while you earn your benefit, that money will be subject to the state income tax laws of the state you are currently a resident of.
Income tax rates can be anywhere from 4.00% to 7.65%. The taxable income ranges that these rates apply to vary depending on your personal status.
Wisconsin has no estate tax.
Current Financial Health of the Wisconsin Retirement System
As of 2022, the WRS had a net pension asset size of $8.1 billion, which was up from a year prior when it was $6.2 billion. Wisconsin also states that its retirement system is nearly 100% funded. This indicates that it’s not currently overcharging contributions from active employees, which means more money for you in the short term. As long as the investment decisions of the fund continue to hold out, there’s no reason this system can’t remain successful.
Tips to Plan for Retirement
- A financial advisor can help you put together a full retirement plan and help you find the right portfolio mix to reach your goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The pension plan that you may be in line for shouldn’t be your only source of income in retirement. While you may be able to rely on Social Security to help close the gap, a personal retirement account, like an IRA or 401(k), would be ideal.
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