Michigan Taxes on Pensions, IRAs, and 401(k)s

If you live in Michigan and are retired or planning to retire soon, understanding how your retirement income is taxed is essential.

Michigan’s rules depend heavily on your birth year and age, which makes planning especially important.

Michigan tax rules are administered by the Michigan Department of Treasury.

This guide explains how pensions, IRAs, 401(k)s, and Social Security benefits are taxed in Michigan.

Does Michigan Tax Retirement Income?

Michigan does tax retirement income, but the amount depends on:

• Your birth year
• Your age
• The type of retirement income

Some retirees qualify for significant deductions, while others may see more of their retirement income taxed.

Michigan uses a flat state income tax rate of 4.25%.

Social Security Benefits

Michigan does not tax Social Security benefits.

Even if part of your Social Security is taxable on your federal return, it is fully exempt from Michigan state income tax.

Example: If $15,000 of your Social Security benefits is taxable federally, Michigan does not tax that amount.

Pensions in Michigan

Pension tax treatment depends largely on birth year.

For many retirees:

• Public pensions may qualify for special treatment
• Private pensions may qualify for a retirement income subtraction
• Deduction limits may apply

The retirement income subtraction allows eligible taxpayers to exclude a portion of pension income from Michigan taxable income.

Example: A retiree receiving $35,000 from a private pension may be able to subtract part or all of that income depending on age and eligibility.

Traditional IRAs and 401(k) Withdrawals

Distributions from:

• Traditional IRAs
• 401(k) plans
• 403(b) plans
• 457 plans

are generally taxable in Michigan unless covered by a retirement income subtraction.

Required minimum distributions (RMDs) are treated the same as regular withdrawals.

Whether these withdrawals are partially or fully deductible depends on the retiree’s birth year and total retirement income.

Example: A 67-year-old withdrawing $30,000 from a traditional IRA may qualify for a retirement income subtraction that reduces Michigan taxable income.

Birth Year Matters

Michigan retirement tax rules vary by birth year group. Taxpayers are generally divided into:

• Born before 1946
• Born between 1946 and 1952
• Born after 1952

Each group has different deduction rules and income thresholds.

Because of these differences, two retirees with identical incomes may owe different Michigan taxes based on age.

Roth IRA Withdrawals

Qualified Roth IRA withdrawals are not taxable federally and are generally not taxable in Michigan.

If a Roth distribution is taxable federally due to early withdrawal or non-qualified distribution, it may also be taxable in Michigan.

What Michigan Does Tax

Michigan taxes:

• Wages from part-time or full-time work
• Business income
• Rental income
• Interest and dividends

If you continue working during retirement, earned income is subject to the 4.25% state income tax rate.

Is Michigan Tax-Friendly for Retirees?

Michigan is moderately tax-friendly for retirees:

• Social Security is fully exempt
• Many retirees qualify for partial or full retirement income deductions
• The flat tax rate keeps calculations simple

However, younger retirees and those born in certain years may have less favorable treatment than older retirees.

💻 Filing Recommendation

When filing your Michigan return, tax software automatically applies the correct retirement income subtraction based on your birth year and age.

Benefits of e-filing include:

• Automatic deduction calculations
• Reduced errors
• Faster processing
• Direct deposit refunds

Understanding how Michigan taxes pensions, IRAs, and 401(k)s can help you plan withdrawals strategically and avoid unexpected state tax liability in retirement.