Does Michigan Tax Roth Conversions? Age Rules and Subtractions

Yes, Michigan does tax Roth conversions. The converted amount flows through your federal adjusted gross income into your Michigan return and is taxed at the state’s flat 4.25% rate for 2026.¹² The important wrinkle: if you are at least 59½ when the conversion happens, Michigan’s retirement income subtraction can reduce or eliminate the state tax on some or all of the converted amount. If you convert before 59½, no subtraction is available and the entire conversion is taxable.³

At 4.25%, a $100,000 conversion carries a baseline Michigan tax of $4,250 before any subtraction. Whether you actually pay that depends on your age, your birth year, and which subtraction method gives you the best result.

How a Conversion Reaches Your Michigan Return

Michigan builds taxable income from your federal AGI, then applies state additions and subtractions.⁴ When you convert a traditional IRA to a Roth, your custodian issues a Form 1099-R with the taxable amount in Box 2a, and that figure lands in your federal AGI.⁵ From there, Michigan taxes the full amount at 4.25% unless you qualify for a subtraction. There are no separate brackets, no capital gains treatment, no preferential rate for investment income.

The 59½ Rule

This is the single most important rule for Michigan taxpayers thinking about a Roth conversion. The Michigan Department of Treasury has confirmed that a Roth conversion qualifies for the retirement income subtraction only if you are at least 59½ when the rollover occurs.³ The rule comes from the statutory definition of “retirement or pension benefits,” which treats IRA distributions as qualifying only after age 59½.⁴

Convert before 59½, and the full amount is taxed at 4.25% with no retirement subtraction. If you cross 59½ during the year, time the conversion for after your half-birthday. For a multi-year Roth conversion strategy, that age threshold often decides which year each tranche should fall in.

Subtraction Methods Available for 2026

If you meet the 59½ test, Michigan offers more than one way to subtract retirement income. A 2023 law (Public Act 4 of 2023) created a phase-in subtraction that runs alongside the older tier-based system. You pick whichever method produces the larger deduction in a given year; you cannot combine them.⁶

Three options are available for 2026:

The phase-in subtraction, open to any eligible taxpayer regardless of birth year, now at 100% of the maximum deduction amount.
The tier-based subtraction, which groups taxpayers by birth year with different limits.
The public safety retiree subtraction, an unlimited deduction for qualifying police, fire, and corrections retirees.

2026 is the first year the phase-in subtraction is fully phased in. During 2023 through 2025, taxpayers born after 1952 could only claim a fraction of the maximum. Starting in 2026, the full amount is available to everyone, which makes the phase-in option more generous than the tier system for most people.⁶

How Much the Phase-In Subtraction Covers

The maximum phase-in subtraction is pegged to the statute’s private pension limits, with annual CPI adjustments.⁴ The statutory base figures are $42,240 single and $84,480 joint, but after inflation adjustments the 2026 limits are approximately $65,987 single and $131,794 joint. Check the current Form 4884 instructions for the exact published figure.

What this means in practice: a $50,000 conversion on a single return falls entirely within the limit and could zero out Michigan tax on the conversion. A $150,000 conversion on the same return exceeds it, leaving roughly $84,000 taxable at 4.25%. For a couple filing jointly, a conversion up to about $131,794 can fit within the deduction depending on other retirement income claimed in the same year.

Tier-Based Subtraction

Under the older tier system, birth year drives the ceiling:⁴

Born before 1946: retirement income can be deducted up to the full CPI-adjusted maximum.
Born 1946 through 1952: the retirement income subtraction is capped at $20,000 single and $40,000 joint. After reaching 67, you can instead take a $20,000/$40,000 deduction against all income, not just retirement income. Higher limits of $35,000/$55,000 apply if your government pension was not covered by Social Security.
Born after 1952: under the tier system alone, no retirement income subtraction is available until age 67, except for Social Security and certain government pensions not covered by Social Security. After 67, the $20,000/$40,000 deduction against all income types becomes available.

For most 2026 filers, the phase-in subtraction beats the tier limits. Taxpayers born before 1946 with significant investment income are the main group that should still run both calculations, because the tier system’s separate investment income deduction can tip the balance. Good tax software compares the methods automatically.

Public Safety Retirees

Retired police officers, firefighters, Michigan State Police troopers and sergeants, and county corrections officers who meet the statutory criteria can deduct their public retirement benefits without a dollar cap, regardless of age. Any benefits claimed under this provision reduce the maximum private retirement benefits deduction available. Administrative or support staff within a police or fire department who are not subject to compulsory arbitration laws do not qualify.⁷

Watch for Local City Income Tax

The state rate is not the only layer. Twenty-four Michigan cities impose their own income tax, and the conversion that raises your AGI raises your city tax too. Most of these cities charge residents 1%; a few charge more. Detroit’s resident rate for 2026 is 2.4%.⁸ Grand Rapids, Highland Park, and Saginaw also sit above the standard 1%.

A Detroit resident converting $100,000 would owe about $2,400 more in city tax, assuming no city-level offset. Combined with the state tax, the Michigan layer alone on a six-figure conversion can be large enough to change whether a given year is the right time to convert.

Plan for Estimated Payments

Roth conversions typically arrive with no state withholding attached, so the tax bill lands at filing time unless you plan ahead. If the conversion creates a Michigan tax liability over $500 after withholding and credits, you are required to make estimated payments.⁹ Skip them and the penalty is 25% of the unpaid amount; pay late or short and it’s 10%.¹⁰

The 2026 quarterly deadlines are April 15, June 15, and September 15 of 2026, and January 15, 2027.⁹ If you convert mid-year, your first required payment is the quarter the income lands in; a July conversion means September 15 is your first deadline.

There is a safe harbor. You avoid the underpayment penalty if your 2026 withholding and timely estimates cover at least 100% of your 2025 tax liability, or 110% if your 2025 AGI exceeded $150,000.⁹ Some filers ask the custodian to withhold Michigan tax directly from the conversion, which simplifies the paperwork at the cost of fewer dollars actually arriving in the Roth.

Forms To File

Claiming the subtraction takes more than the MI-1040 itself.

Form 1099-R from your custodian. Box 2a shows the taxable amount feeding federal AGI.⁵
Form 4884, Michigan Retirement and Pension Schedule. This is where you report the taxable retirement benefits, choose a subtraction method, and compute the deduction.¹¹
Michigan Schedule 1, Additions and Subtractions. The deduction from Form 4884 flows here to adjust your federal AGI for state purposes.¹²
MI-1040. The totals from Schedule 1 carry to the main return, where tax is calculated at 4.25%.

Recipients born before January 1, 1967 may qualify for more than one subtraction option but can only claim one per year.¹¹ Filling out the wrong section of Form 4884 is a common cause of processing delays and Department of Treasury notices on returns involving retirement income, so review the method you selected before filing.

1
Michigan Department of Treasury. Are Conversions From a Regular IRA to a Roth IRA Subject to Michigan Individual Income Tax
2
Michigan Department of Treasury. State Individual Income Tax Rate for 2026 Tax Year Determined
3
Michigan Department of Treasury. Is a Rollover From a Regular IRA to a Roth IRA an Allowable Subtraction
4
Michigan Legislature. Michigan Compiled Laws 206.30 – Taxable Income Defined
5
Internal Revenue Service. Instructions for Forms 1099-R and 5498
6
Michigan Department of Treasury. Retirement and Pension Benefits
7
Michigan Department of Treasury. Revenue Administrative Bulletin 2026-1
8
Michigan Department of Treasury. City of Detroit Income Tax Withholding Guide 2026
9
Michigan Department of Treasury. 2026 MI-1040ES Michigan Estimated Income Tax for Individuals
10
Michigan Department of Treasury. Did You Receive a Notice for Underpayment of Estimates
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Michigan Department of Treasury. Form 4884 Instructions
12
Michigan Department of Treasury. 2025 Michigan Schedule 1 Additions and Subtractions