Retirement Tax Bite

You may be surprised to find out that Michigan has one of the best tax deals in the U.S. for retired people.  Largely this is due to Michigan’s state-income-tax exemption of up to $90,240 of private pension income per couple. Many types of government pensions are totally tax-exempt:

Michigan and federal public pensions – Federal and Michigan public pensions are totally exempt.

Public pensions from other states – Michigan residents can treat the public pensions received from the following states as totally exempt: Alaska, Florida, Hawaii, Illinois, Massachusetts, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming because they do not tax Michigan Public Pensions.

Michigan residents who receive public pensions from states not listed above are subject to the private pension exemption limits.

Kiplinger’s Magazine ranked state capital cities’ relative “retirement tax bite” and Michigan was found to be the sixth best state in the U.S. for retirees. Neighboring states did not fare as well:

Wisconsin (Madison) Ranked 49th

Ohio (Columbus) Ranked 25th

Indiana (Indianapolis) Ranked 19th

Illinois (Springfield) Ranked 15th

Need more proof? Forbes.com named Michigan one of its seven best (unknown) retirement tax havens.

But the news is even better for retirees locating in Muskegon. Several of the condominium projects highlighted on this site are located in renaissance zones. These are areas created by the City of Muskegon under state law specifically to promote development. Living in a renaissance zone means you will pay no property tax and no state or local income tax. The tax benefits are huge. We’ve created a separate page to fully explain the benefits of locating in one of Muskegon’s renaissance zones.

The sales tax in Muskegon is six percent (6%).  Groceries and prescription drugs are not subject to the Michigan sales tax.  By way of comparison, the sales tax rate in Chicago is 10.25%.  Chicago’s sales tax is 2% on grocery items, drugs, and medical appliances.  Milwaukee has a 5.6% sales tax with prescriptions and most non-prepared foods being exempt.

Michigan does not collect an inheritance or estate tax.

Many grandparents contribute to 529 college savings plans. Michigan allows a state income tax deduction for 529 contributions up to $5,000 for a single taxpayer and $10,000 for a married couple filing jointly.

We’ve included the complete results of the Kiplinger study below for your information:

The retirement tax bite, state by state

City State Income tax Property tax Home price Sales tax Total Dover DE $0 $543 $133,010 $0 $543 Juneau AK* $0 $1,032 $240,000 $0 $1,032 Frankfort KY $0 $274 $163,160 $840 $1,114 Columbia SC $0 $518 $127,730 $1,000 $1,518 Albany NY $0 $912 $120,490 $1,120 $2,032 Lansing MI $0 $1,312 $116,900 $840 $2,152 Jackson MS $423 $362 $113,410 $1,400 $2,185 Cheyenne WY* $0 $1,007 $141,680 $1,200 $2,207 Carson City NV* $0 $1,346 $165,620 $980 $2,326 Denver CO $248 $1,141 $212,240 $1,008 $2,397 Atlanta GA $66 $1,388 $162,000 $980 $2,434 Baton Rouge LA $225 $600 $129,800 $1,680 $2,505 Boise ID $399 $1,424 $145,950 $1,000 $2,823 Richmond VA $26 $1,964 $139,270 $870 $2,860 Springfield IL $0 $1,761 $86,680 $1,105 $2,866 Sacramento CA $148 $1,669 $165,640 $1,085 $2,902 Phoenix AZ $479 $1,309 $141,670 $1,134 $2,922 Salem OR $777 $2,160 $139,330 $0 $2,937 Indianapolis IN $1,013 $1,236 $117,690 $700 $2,949 Honolulu HI $1,274 $939 $357,310 $800 $3,013 Montgomery AL $948 $323 $125,850 $1,800 $3,071 Salt Lake City UT $786 $1,190 $150,340 $1,320 $3,296 Nashville TN $0 $1,666 $145,510 $1,650 $3,316 Raleigh NC $455 $1,845 $194,380 $1,030 $3,330 Columbus OH $243 $2,300 $136,010 $805 $3,348 Oklahoma City OK $817 $900 $90,940 $1,675 $3,392 Tallahassee FL** $160 $2,284 $131,680 $980 $3,424 Olympia WA* $0 $2,322 $156,280 $1,120 $3,442 Austin TX $0 $2,332 $152,000 $1,155 $3,487 Boston MA $872 $1,991 $260,850 $700 $3,563 Des Moines IA $461 $2,324 $123,020 $840 $3,625 Hartford CT $234 $2,561 $125,330 $840 $3,635 Pierre SD $0 $2,565 $131,750 $1,080 $3,645 Helena MT $2,339 $1,392 $145,880 $0 $3,731 Jefferson City MO $589 $2,263 $140,860 $1,065 $3,917 Washington DC $2,119 $1,036 $245,740 $805 $3,960 St. Paul MN $1,383 $1,608 $139,320 $980 $3,971 Topeka KS $1,114 $1,506 $91,930 $1,360 $3,980 Charleston WV $1,661 $1,192 $104,240 $1,200 $4,053 Santa Fe NM $897 $1,946 $329,610 $1,288 $4,131 Lincoln NB $994 $2,345 $115,180 $910 $4,249 Bismarck ND $635 $3,194 $144,570 $840 $4,669 Providence R.I. $1,156 $2,831 $134,680 $980 $4,967 Augusta ME $813 $3,604 $153,490 $700 $5,117 Little Rock AR $2,241 $1,620 $117,370 $1,325 $5,186 Concord NH $0 $5,279 $193,090 $0 $5,279 Annapolis MD $1,238 $3,483 $275,560 $1,000 $5,395 Montpelier VT $1,057 $4,065 $124,320 $700 $5,822 Madison WI $1,320 $3,926 $159,690 $770 $6,016 Trenton NJ $87 $5,788 $148,800 $840 $6,715 Harrisburg PA $0 $6,551 $112,330 $840 $7,391

*State has no income tax. **Florida has no income tax. The $160 figure includes an intangibles tax.