Michigan Finished Phasing Out Its Tax on Pensions. What a Retirement in Grand Rapids Looks Like Now
By Google News Personal Finance ·
Michigan's pension phase-out is complete in 2026, letting retirees subtract up to $67,610 single or $135,220 joint, and Social Security stays untaxed.
A Grand Rapids retiree with a paid-off home needs roughly $530,000 single or $410,000 as a couple at a 4% withdrawal rate.
When a spouse dies, the survivor's cap drops to $67,610, so the same withdrawals trigger about $1,100 in new annual state tax.
Many West Michigan retirees spent years planning a move to Florida or Tennessee, usually because Lansing was taxing their pensions. That math has changed.
Michigan's retirement and pension subtraction is fully phased in starting with the 2026 tax year, so many people who planned to leave are now running the numbers on staying in Grand Rapids. Here's where the tax rules stand, what a Grand Rapids retirement costs, and the one detail that still catches people off guard.
Michigan doesn't tax Social Security. Pensions, 401(k) payouts, and IRA withdrawals taken at 59½ or later can now be subtracted up to $67,610 single or $135,220 joint in 2026, the first year everyone gets the full amount, no matter what year you were born. Anything above that cap is taxed at the flat 4.25% rate, and there's a $5,900 personal exemption. Military retirement pay is fully exempt.
Some income doesn't get the break. Interest, dividends, and capital gains from a regular brokerage account don't qualify, and a 401(k) funded only by employee contributions may not qualify. Withdrawals before 59½ are taxable. Michigan's city income taxes, Grand Rapids' among them, exempt pensions and retirement benefits, though early IRA withdrawals can be taxed.
For example, a married couple, both 67, with $42,000 of Social Security and $40,000 of IRA withdrawals owes $0 to Michigan and $1,295 in federal tax. Homeowners with lower incomes can also claim the homestead property tax credit on Form MI-1040CR. A 2025 Senate bill proposed raising its income limits, and the current form lists the cutoffs.
If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)
Grand Rapids housing has become more expensive. The metro median listing price was $399,900 in September 2026, while a typical home inside the city runs about $247,900. Metro prices rose 4.49% over one year and 49.75% over five. For retirees whose house is already paid off, staying costs less than buying in.
BestPlaces puts Grand Rapids living expenses at $41,200 a year for a single person and $47,520 for a family. The table includes Medicare Part B at $202.90 a month per person, plus a home maintenance reserve of 1% of a typical home's value. Then it deducts the typical retiree's Social Security check: $2,071 a month for a retired worker and $3,208 for a couple.
With a 4% withdrawal rate, the single retiree needs about $531,545. A more conservative 3.5% rate puts it at about $607,480. The couple needs about $409,315 at 4% or $467,789 at 3.5%. Both withdrawals sit well under the cap, so Michigan takes nothing.
The gap shrinks further if you delay Social Security, since the benefit at full retirement age goes as high as $4,152 a month. Next year's 3.6% COLA helps. Inflation remains a concern for retirees, with…
Originally published by Google News Personal Finance
