Michigan Ends Its Pension Tax. Here Is What Retiring in Grand Rapids Now Looks Like

Michigan has finally eliminated its pension tax, prompting some Grand Rapids retirees to reconsider moves to Florida. Yet one little-known rule can leave a surviving spouse with an unexpected state tax bill, and many couples never realize it.

Many West Michigan retirees spent years thinking about relocating to Florida or Tennessee because their pensions were being taxed in Lansing. That calculation has now changed.

Michigan’s retirement and pension subtraction is fully phased in beginning with the 2026 tax year, which has led some people who planned to leave to revisit whether staying in Grand Rapids makes more sense. The details below explain the current tax rules, the cost of retiring in Grand Rapids, and the one issue that still catches many households off guard.

How Michigan Taxes Retirees Now

Michigan does not tax Social Security. Pensions, 401(k) distributions, and IRA withdrawals taken at age 59½ or older can now 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. Any income above that limit is taxed at the flat 4.25% rate, and taxpayers also get a $5,900 personal exemption. Military retirement pay remains fully exempt.

Not all income qualifies for the break. Interest, dividends, and capital gains from a standard brokerage account do not count, and a 401(k) funded only by employee contributions may not qualify. Withdrawals taken before age 59½ are taxable. Michigan city income taxes, including Grand Rapids’ tax, exempt pensions and retirement benefits, though early IRA withdrawals can still be taxed.

For instance, a married couple age 67 with $42,000 of Social Security income and $40,000 in IRA withdrawals would owe $0 to Michigan and $1,295 in federal tax. Lower-income homeowners may also qualify for the homestead property tax credit on Form MI-1040CR. A Senate bill introduced in 2025 proposed increasing its income limits, and the current form shows the existing thresholds.

What Retirement Costs in Grand Rapids

Housing in Grand Rapids has become more expensive. The metro area’s median listing price was $399,900 in September 2026, while a typical home within the city was around $247,900. Metro prices increased 4.49% over one year and 49.75% over five years. For retirees who already own their home outright, staying is cheaper than buying.

BestPlaces estimates annual living costs in Grand Rapids at $41,200 for a single person and $47,520 for a family. The estimate includes Medicare Part B at $202.90 a month per person, along with a home maintenance reserve equal to 1% of a typical home’s value. It then subtracts the average Social Security benefit: $2,071 a month for a retired worker and $3,208 for a couple.

Using a 4% withdrawal rate, a single retiree would need about $531,545. At a more cautious 3.5% rate, that rises to roughly $607,480. For a couple, the figures are about $409,315 at 4% or $467,789 at 3.5%. In either case, the withdrawals stay below the Michigan cap, so no state tax is owed.

The gap narrows further if Social Security is delayed, since the benefit at full retirement age can reach $4,152 a month. A 3.6% COLA helps as well. Inflation is still a concern for retirees, with overall consumer prices up 3.7% over the year ending September 2026.

Lake Michigan in Summer, Winter in Full Force

Grand Rapids also performs well on quality-of-life measures. The metro ranked No. 13 out of 200 in the Fall 2026 WSJ/Realtor.com ranking, which weighs amenities and economic health along with housing. Lake Michigan beaches are close enough for an easy day trip, though winter brings a different set of costs.

Lake-effect snow means shoveling, icy roads, and months of heating bills. Even so, BestPlaces rates Grand Rapids utilities at 99.9, roughly the national average, despite lower costs in some other places.

Why the Tax Limit Drops After a Spouse Dies

The Michigan cap applies per return, not per person. While both spouses are living, a couple withdrawing $100,000 a year from IRAs pays no Michigan tax. After one spouse dies and the survivor files as single, the cap falls to $67,610. On the same withdrawal amount, that creates about $1,126 in new state tax each year.

That change arrives just as the household loses one Social Security payment. The surviving spouse usually keeps the larger benefit, but the Medicare surcharge threshold also drops from $218,000 to $109,000 for single filers. It is one of those quiet IRS rules that can drain retirement savings without warning.

Roth conversions completed at age 59½ or later count toward the cap, so some couples take advantage of their joint-filing years to move money into Roth accounts while the limit is twice as high.

What It Takes to Remain in Grand Rapids

With a paid-off home and an average Social Security benefit, a single retiree needs about $530,000 to $610,000, while a couple needs roughly $410,000 to $470,000. Those estimates assume annual spending equal to 3.5% to 4% of savings.

Withdrawals below the cap avoid state tax, but survivor years change the picture. Before deciding whether to stay or leave, the key form to understand is Michigan’s pension schedule, Form 4884. It shows whether pension, 401(k), and IRA income falls under the cap.