If you live in Michigan, and have retirement income from Social Security, a pension or an IRA…listen up! This is kinda sorta a big deal and I’m shocked that nobody is talking about it. So, I’m going to talk about it.
Again.
Have you been following the law called Michigan Public Act 4 of 2023, also known as the "Lowering MI Costs Plan," which was signed in March of 2023 and significantly reduces state income taxes on retirement and pension income starting in 2024 and ending in 2026?
I’m going to assume you have not.
And the reason I’m going to assume you have not is because when I ask Google about how this tax repeal applies to IRA’s (basically fact-checking myself as I usually do) it doesn’t show up easily on page one. Or two. I don’t check page three. Which tells me the algorithms aren’t being asked enough to satisfy the public’s curiosity about this massive change in every Michigander’s IRA life. So, I’m going to do my part to get the word out there.
Again.
Now, you all know by now that I’m not a tax advisor which means I cannot provide tax advice in this blog…so please check with the human that helps you with your taxes and find out how this will apply to you. And if you don’t have a human, call the toll-free number. And if you don’t have a toll-free number, ask Google…and boost the algorithm for me!
Back to the story.
Maybe, in 2011, you were following the Michigan Public Act 38 which imposed a Michigan state tax on retirement income beginning in tax year 2012. (Before this law, most retirement income, particularly public pensions, was exempt from state taxes.) Maybe you missed this because that was the same year our Navy SEALs found Osama bin Laden which was in every headline, soundbite and news report known to man. Honestly, I can see how you may have missed it. Basically, this law created a three-tiered system where the tax exemptions were based on a person's date of birth and their total household resources. It did not apply to retirees born before 1946, who kept their full exemption. This could be why the new tiered phase out looks like this:
2023 Tax Year (filed in 2024): Retirees born between 1946 and 1958 can deduct up to 25% of their pension income.
2024 Tax Year (filed in 2025): Retirees born between 1946 and 1962 can deduct up to 50% of their pension income.
2025 Tax Year (filed in 2026): Retirees born between 1946 and 1966 can deduct up to 75% of their pension income.
2026 Tax Year (filed in 2027 and later): All retirees, regardless of birth year, can claim the maximum deduction
As you can see, the final phase-out is happening next year which will be reconciled in your taxes in April of 2027. That seems like a long way out…but let me yell this one so everyone can hear it:
IF YOU WANT TO HAVE ACCURATE STATE INCOME TAX WITHELD FROM YOUR MONTHLY IRA ACCOUNTS, YOU SHOULD MAKE THAT CHANGE IN DECEMBER OF 2025 TO BECOME EFFECTIVE STARTING IN JANUARY OF 2026.
Do you think Google heard me? I sure hope so…because it’s kinda sorta a big deal. This law may make tax returns a little more complicated for anyone taking IRA income these last few years, but it may make their IRA portfolios and pensions a bit happier not having that mandatory 4.25% withheld anymore.
Do me a solid, please? Tell your friends. Ask your favorite search engine. Let’s get this topic trending so Michigan retirees can enjoy the feeling of that little bit of extra cash flow every month. They deserve it.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER®
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
www.enderswm.com
#kimenderscfp
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