Let’s run a quick test. Think about how you feel when you hear each of these words:
- Christmas
- Fresh cookies
- Hugging a close friend or family member
- Taxes
- Your favorite song
🎵 One of these things is not like the other 🎵
Did “taxes” make you clench your jaw, stare blankly into the middle distance, and briefly question all of your life choices? Completely normal. You’re in good company.
I’m not here to convince you that taxes should spark joy. I am here to tell you that understanding them, specifically how they apply to your retirement accounts, can save you a meaningful amount of money. And since this is a southern Michigan company talking to mostly Michigan folks, let’s make this relevant to you specifically. Because Michigan actually has some genuinely good news for retirees in 2026. We’ll get to that.
First, a Quick Tax Refresher
Income taxes are based on how much you earn in a calendar year. But before we get to Michigan’s rules, let’s make sure we’re all working from the same foundation.
Filing Status
Your filing status determines which tax brackets apply to you. Single filers, married filing jointly, married filing separately, and head of household all have different thresholds. Getting this wrong is more common than you’d think.
2026 Federal Tax Brackets
Here’s where things stand for 2026 — the brackets have been adjusted upward for inflation compared to recent years:
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $17,700 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 | $17,701 – $67,450 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 | $67,451 – $105,700 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 | $105,701 – $201,775 |
| 32% | $201,776 – $256,225 | $403,551 – $512,450 | $201,776 – $256,200 |
| 35% | $256,226 – $640,600 | $512,451 – $768,700 | $256,201 – $640,600 |
| 37% | Over $640,600 | Over $768,700 | Over $640,600 |
The important thing to remember: these are marginal rates. You are not paying 22% on every dollar you earn just because you’re in the 22% bracket. You’re paying 10% on the first chunk, 12% on the next chunk, and 22% only on the income that falls within that range.
Here’s a quick example. Say you’re a single filer with $100,000 in taxable income in 2026:
| Bracket | Income Taxed | Tax Owed |
|---|---|---|
| 10% | $12,400 | $1,240 |
| 12% | $38,000 | $4,560 |
| 22% | $49,600 | $10,912 |
| Total | $100,000 | $16,712 |
Your effective (actual average) tax rate is about 16.7%, not 22%. The bracket is the ceiling on your last dollar, not the rate on all of them. This distinction matters enormously when you’re thinking about Roth conversions, IRA withdrawals, and other retirement income decisions.
Roth vs. Traditional — Still the Most Important Choice You’re Not Making Intentionally
At its core, this decision is simple: do you want to pay taxes now or later?
Traditional accounts (401k, Traditional IRA, 403b, 457, etc.) — you contribute pre-tax, the money grows tax-deferred, and you pay ordinary income tax on every dollar you withdraw in retirement. Every dollar comes out taxed like a paycheck.
Roth accounts — you contribute after-tax dollars, but the money grows completely tax-free and comes out tax-free in retirement. You paid the tax once. You’re done.
Which is better? It depends on one question: are you in a higher tax bracket now or will you be later?
If you’re early in your career and in a lower bracket — Roth often wins. Pay the lower rate now, enjoy tax-free growth for decades.
If you’re in peak earnings years and expect significantly lower income in retirement — traditional may make more sense. Defer the tax hit until you’re in a lower bracket.
Here’s the context that should inform your thinking in 2026: the top marginal federal rate sits above 37% and the One Big Beautiful Bill Act made the current rate structure permanent. We’re in a historically favorable tax environment. That’s an argument for Roth contributions and Roth conversions for a lot of people right now — but it’s not universal. Talk to a financial planner and your CPA together before deciding. taxfoundation
Required Minimum Distributions — The Government’s Patience Has a Limit
Here’s something a lot of people don’t think about until it’s too late: the government eventually gets tired of waiting for their tax money.
Tax-deferred accounts come with Required Minimum Distributions (RMDs). Starting at age 73 (75 for those born in 1960 or later), you are required to withdraw a minimum amount from your traditional IRA and 401k accounts every year — whether you need the money or not. The amount increases each year based on your account balance and a life expectancy factor assigned by the IRS.
Why does this matter? Because those forced withdrawals count as taxable income. If you haven’t planned for them, they can push you into a higher bracket, trigger taxes on your Social Security, and create an IRMAA surcharge on your Medicare premiums all at the same time.
The best defense against an RMD problem is a proactive Roth conversion strategy in the years before RMDs kick in. That’s a conversation worth having sooner rather than later.
The Michigan-Specific News (This Is Actually Good News)
Here’s where Michigan residents get something worth paying attention to in 2026.
Michigan’s flat state income tax rate remains 4.25%. That part hasn’t changed.
What has changed: the retirement income exemption phase-in is now complete.
Michigan passed Public Act 4 of 2023, which phased in expanded retirement income exemptions over several years. For the 2026 tax year, that phase-in is complete, and it applies to most forms of retirement income for Michigan residents, including withdrawals from 401k plans, IRAs, annuities, and certain deferred compensation plans. kiplinger
The 2026 exemption limits are:
- $67,610 for single filers
- $135,220 for married filing jointly
For most Michigan retirees, the deduction now exceeds their total retirement income, effectively eliminating state income tax on pension, 401k, and IRA withdrawals. That’s a meaningful benefit, especially for couples. A retired Michigan couple drawing $130,000 from pensions and IRAs could effectively pay zero Michigan state income tax on that income, a tax savings of $5,525. countrytaxcalc
A few important notes:
- The exemption applies to income reported on a 1099-R — qualified retirement distributions
- Social Security has been fully exempt from Michigan state income tax regardless of these changes
- The birth-year tier system that created so much confusion in previous years is largely resolved now that the full phase-in is complete
- Military retirement pay has been fully exempt since 2016
This is genuinely one of the better developments for Michigan retirees in recent years, and most people don’t know about it yet.
The Saver’s Credit — A Bonus for Younger Earners
One more thing worth knowing, especially for younger readers. If you’re 18 or older, not a student, and not claimed as someone else’s dependent, you may qualify for the Retirement Savings Contributions Credit.
This credit allows you to get back up to 50% of your retirement account contributions depending on your income level. It’s a tax credit, meaning it directly reduces what you owe, not just your taxable income. For young earners contributing to a Roth IRA in lower-income years, this can essentially make your contributions partially free. Check the IRS website for current income thresholds and credit percentages.
The Bottom Line
Taxes in retirement are not just a filing exercise. They’re a planning exercise, and the earlier you approach them that way, the better your outcomes tend to be.
The good news for Michigan residents in 2026: the retirement income exemption reaching full phase-in is a genuine win that many retirees aren’t yet aware of. The federal bracket structure remaining stable gives you a known playing field to plan around. And the math on Roth conversions remains compelling for many people given where rates are historically.
The not-so-good news: none of this happens automatically. A financial planner and a CPA working together (you know, actually talking to each other) is what turns these rules from interesting facts into real money saved.
If you’re in the mid-Michigan area and want to understand how these rules apply to your specific situation, that’s exactly the conversation we have in a first meeting. And the first one is always on us.
The information in this article is for educational purposes only and is not tax advice. Tax laws change frequently and individual circumstances vary. Please consult a qualified tax professional for advice specific to your situation.
