Michigan pension tax phase-out and retirement in Grand Rapids, Digi Mart USA News (Grand Rapids, Michigan): Michigan’s pension tax is now fully phased out, and Grand Rapids retirees who once planned to move to Florida or Tennessee are reconsidering. One rule, however, can leave a surviving spouse with an unexpected state tax bill.
Many West Michigan retirees had spent years planning a move because Lansing taxed their pensions. According to the publisher’s report, that calculation 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 comparing the cost of staying in Grand Rapids.
Michigan does not tax Social Security. Pensions, 401(k) payouts, and IRA withdrawals taken at age 59½ or later can be subtracted up to $67,610 for single filers or $135,220 for joint filers in 2026, the first year everyone receives the full amount regardless of birth year.
Amounts above that cap are taxed at the flat 4.25% rate, and there is a $5,900 personal exemption. Military retirement pay is fully exempt.
Some income does not qualify for the break. Interest, dividends, and capital gains from a regular brokerage account are not eligible, and a 401(k) funded only by employee contributions may not qualify.
Withdrawals before age 59½ are taxable. The source reports that Michigan’s city income taxes, including Grand Rapids’, exempt pensions and retirement benefits, although early IRA withdrawals can be taxed.
As an example, the report describes a married couple, both age 67, with $42,000 in Social Security and $40,000 in IRA withdrawals who owes $0 to Michigan and $1,295 in federal tax. Homeowners with lower incomes may also claim the homestead property tax credit on Form MI-1040CR.
The source notes that a 2025 Senate bill proposed raising its income limits, and that the current form lists the cutoffs.
Housing costs have risen. 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 homes are already paid off, the report says staying costs less than buying.
BestPlaces puts Grand Rapids living expenses at $41,200 a year for a single person and $47,520 for a family. That estimate includes Medicare Part B at $202.90 a month per person and a home maintenance reserve of 1% of a typical home’s value, minus the typical retiree’s Social Security check of $2,071 a month for a retired worker or $3,208 for a couple.
Using a 4% withdrawal rate, the source estimates a single retiree needs about $531,545, and about $607,480 at a more conservative 3.5% rate. A couple needs about $409,315 at 4% or $467,789 at 3.5%.
Both withdrawal levels fall under the cap, so Michigan collects no tax on them. Delaying Social Security can narrow the gap, since the benefit at full retirement age can reach $4,152 a month.
The report notes a 3.6% cost-of-living adjustment next year and overall consumer prices rising 3.7% over the year ending September 2026.
The metro ranked No. 13 of 200 in the Fall 2026 WSJ/Realtor.com ranking, which considers amenities and economic health along with housing. Lake Michigan beaches are an easy day trip.
The source also points to winter costs: BestPlaces scores Grand Rapids utilities at 99.9, about the national average.
The Michigan cap applies per return, not per person. While both spouses are alive, a couple withdrawing $100,000 a year from IRAs pays no Michigan tax.
Once the survivor begins filing as single, the cap drops to $67,610, which the report estimates would mean about $1,126 a year in new state tax on the same withdrawals.
The surviving spouse also loses one Social Security payment, though generally keeps the higher benefit, and the Medicare surcharge threshold drops from $218,000 to $109,000 for single filers. Roth conversions made at age 59½ or later count within the cap, so some couples use joint-filing years to move money into Roth accounts while the cap is larger.
According to the report, a single retiree with a paid-off home and a typical Social Security benefit needs about $530,000 to $610,000, and a couple needs about $410,000 to $470,000, assuming annual spending of 3.5% to 4% of savings. The article recommends reviewing Michigan’s pension schedule, Form 4884, to determine whether pension, 401(k), and IRA money falls under the cap.
