Michigan Finished Phasing Out Its Tax on Pensions. What a Retirement in Grand Rapids Looks Like Now

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.

What Michigan Taxes Now That the Phase-Out Is Done

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.

Pricing a Grand Rapids Retirement

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 overall consumer prices rising 3.7% over the year ending September 2026.

Lake Michigan Summers and Long, Gray Winters

The metro also scores well on quality-of-life measures. 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. Winter includes costs.

Lake-effect snow means shoveling, slick roads, and months of furnace bills, and BestPlaces scores Grand Rapids utilities at 99.9, about the national average, even with cheaper living costs elsewhere.

Why the Cap Shrinks When a Spouse Dies

The Michigan cap is per return, not per person. While both spouses are alive, a couple pulling $100,000 a year from IRAs pays no Michigan tax. Once the survivor starts filing single, the cap drops to $67,610. On the same withdrawals, that’s about $1,126 a year in new state tax.

At the same time, the household loses on Social Security payments. The surviving spouse loses one Social Security payment. The surviving spouse generally keeps the higher benefit, while the Medicare surcharge threshold drops from $218,000 to $109,000 for single filers. It’s one of those quiet IRS rules that drains retirement accounts without warning (we mapped out nine of them in a free tax trap guide here).

Roth conversions done at 59½ or later count within the cap, so some couples use their joint-filing years to move money into Roth accounts while the cap is twice as big.

What It Takes to Stay in Grand Rapids

With a paid-off home and a typical Social Security benefit, a single retiree needs about $530,000 to $610,000 and a couple about $410,000 to $470,000. That assumes spending 3.5% to 4% of savings a year.

Yearly retirement withdrawals under the cap avoid state tax, and the survivor years change that math. Before deciding whether to stay or go, the one form to understand is Michigan’s pension schedule, Form 4884. It shows whether your pension, 401(k), and IRA money fall under the cap.

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