Retiring in Indiana, Ohio, or Michigan: the tri-state comparison

What actually changes when you cross the state line?

Four things change, and only four: the state income tax rate, whether a local government gets a cut of your income, how the state treats money coming out of a pension or an IRA, and what the county assessor charges you to own the house. Social Security is not one of them. Indiana, Ohio, and Michigan all subtract Social Security benefits from state taxable income, so the only rules that touch your benefit check are federal.

That surprises people. A retired couple in Auburn hears that Ohio "just went flat" and assumes there's money on the table forty minutes east. Somebody in Angola hears that Michigan "stopped taxing pensions" and starts pricing houses in Coldwater. Both stories are half true, and the half that's missing is usually the half that decides the answer.

Here's the version that shows up on r/personalfinance and in the parking lot after church, more or less word for word: "We're 63, we've lived in Allen County our whole lives, and my brother-in-law will not shut up about how much cheaper Ohio is. I've looked it up four times and gotten four different answers." That's a fair complaint, because the four answers are usually four different pieces of the same bill — income tax, local tax, property tax, sales tax — and almost nobody adds all four together.

So let's add them together. Every number below is stamped with its tax year and linked to the agency that published it, because state tax law in this part of the country has changed in each of the last four sessions.

How does each state tax Social Security and retirement withdrawals?

Social Security: none of the three touch it. Pension and IRA money: all three treat it differently, and that difference is where the real gap lives.

Indiana is the simplest. The Indiana Department of Revenue states plainly that "Indiana does not tax Social Security and railroad retirement benefits issued by the Railroad Retirement Board." Everything else — pension, 401(k) distribution, traditional IRA withdrawal — lands in Indiana adjusted gross income and gets taxed at the flat state rate plus your county rate. There's a civil service annuity deduction of up to $16,000 for nonmilitary federal retirees who are at least 62, and a homeowner's residential property tax deduction of up to $2,500, but there is no general "retirement income exclusion" the way some states have one.

Ohio deducts Social Security and tier 1 railroad retirement benefits from Ohio adjusted gross income under Ohio Revised Code 5747.01(A)(5)(a). Other retirement income stays taxable, but Ohio hands part of it back as a credit. Under Ohio Revised Code 5747.055, a taxpayer with modified adjusted gross income under $100,000 gets a retirement income credit that steps up with the amount of retirement income received: $25 on more than $500, $50 on more than $1,500, $80 on more than $3,000, $130 on more than $5,000, and $200 on more than $8,000. Ohio adds a $50 senior citizen credit per return at 65 and older under the same $100,000 ceiling. Those are real dollars, but they're small dollars — the credit tops out at $200 no matter how large the pension is.

Michigan is the state that changed the most. Michigan's rate is a flat 4.25%, the highest of the three, but the Department of Treasury's Revenue Administrative Bulletin 2026-1 confirms that for 2026 and after, taxpayers may deduct combined public and private retirement benefits up to the inflation-adjusted private retirement maximum — the end of a four-year phase-in. For 2025 that maximum was $65,897 for single filers and $131,794 for joint filers, and it is adjusted annually. The same bulletin notes that Public Act 24 of 2025 lets Michigan taxpayers born after 1952 and aged 67 or older claim both the standard deduction and the Social Security deduction for 2026 through 2028.

Read that last paragraph twice, because it flips the ranking. A Michigan couple whose entire retirement income is Social Security plus a pension and IRA withdrawals under the cap can owe Michigan very little — while paying the highest headline rate of the three.

The headline rate tells you almost nothing. What gets subtracted before the rate is applied tells you almost everything.

Why does the Indiana number change from county to county?

Because Indiana is the only one of the three where a county income tax applies to essentially every resident, and the rate is set locally. The state rate for 2026 is 2.95%, confirmed in the Indiana Department of Revenue's Departmental Notice #1, effective January 1, 2026. Your county rate then stacks on top of it, and in northeast Indiana that rate more than doubles depending on which side of a county line your mailbox sits on.

The same notice explains the rule that catches movers: both your county of residence and your county of principal work are determined on January 1 of the year in which your taxable year begins. Move in February and your county rate for that year is still the county you woke up in on New Year's Day.

For a retired couple pulling $60,000 a year out of an IRA, the spread between Kosciusko County at 1.00% and DeKalb County at 2.13% is $678 a year in county income tax on identical income. That is not a rounding error, and it is entirely invisible on any "best states to retire" listicle, because those articles compare state rates only.

What does this look like for one real couple?

Meet Dale and Rita Kruse. Both 67, married filing jointly, no wages. Their income in 2026 breaks down as $38,000 of combined Social Security, $22,000 from Dale's manufacturing pension, and $35,000 pulled from a traditional IRA. Call it $95,000 gross. They own a paid-off house assessed at $215,000 — close to the Allen County median property value of $214,900 in the 2024 American Community Survey.

First the federal layer, which follows them across every state line. Under IRS Publication 915, half their Social Security ($19,000) plus all their other income ($57,000) equals $76,000 of combined income — well above the $44,000 joint threshold, so up to 85% of their benefits are taxable federally. That's the same in Fort Wayne, Van Wert, and Hillsdale. Nothing about moving changes it.

Now the state layer. Roughly $89,300 of their income shows up in federal AGI once 85% of Social Security is counted. Each state then starts subtracting.

Indiana (Allen County). Indiana pulls the taxable Social Security back out, leaving about $57,000 of Indiana taxable income before deductions. At 2.95% state plus 1.59% county — a combined 4.54% — that is roughly $2,588 before the homeowner's property tax deduction, which shaves a bit more off. In DeKalb County at 5.08% combined, the same couple would owe roughly $2,896. Same income, same house value, $308 apart, purely because of where the county line runs.

Ohio. Ohio also removes the Social Security, leaving about $57,000. Ohio exempts the first $26,050 of nonbusiness income, so roughly $30,950 is taxed at 2.75% — about $851. Then the retirement income credit knocks off $200 and the senior citizen credit another $50, since their modified AGI is under $100,000. Call it $601.

Michigan. Michigan removes the Social Security too, and then the retirement subtraction goes to work on the pension and the IRA. Their $57,000 of pension and IRA income sits well under the joint maximum ($131,794 for 2025, inflation-adjusted for 2026), so essentially all of it comes back out. Their Michigan bill lands near zero.

On income tax alone, Michigan wins, Ohio is second, and Indiana is last — the exact reverse of what the headline rates suggest. And then the property tax bill arrives.

Does property tax cancel out the income tax difference?

It reduces it, and in Indiana's case it reverses part of it. The Tax Foundation's 2026 state pages put effective property tax rates on owner-occupied housing at 0.76% in Indiana, 1.19% in Michigan, and 1.36% in Ohio. On the Kruses' $215,000 house that's roughly $1,634, $2,559, and $2,924 respectively — a spread of nearly $1,300 a year, which is larger than the entire income tax gap between Indiana and Ohio.

Indiana also caps the bill. The Indiana Department of Local Government Finance explains that homestead property is capped at 1 percent of gross assessed value, other residential and agricultural land at 2 percent, and other real and personal property at 3 percent. That circuit breaker is the reason Indiana's effective rate stays low even in counties with high local levies, and it's a genuinely useful thing to own in a rising market: your assessment can climb, but the tax on your homestead runs into a ceiling.

The catch is that a cap is not a freeze. Assessed value still moves, and the levy still moves under the cap. Anyone budgeting a fixed retirement income on the assumption that a capped bill is a flat bill is going to be unpleasantly surprised in about year three.

• Indiana: 0.76% effective rate, with statutory caps of 1% homestead, 2% other residential and farmland, 3% everything else.
• Michigan: 1.19% effective rate, with a taxable-value growth limit that resets when a property changes hands.
• Ohio: 1.36% effective rate — the highest of the three, and the number most likely to erase an income tax saving.

What about sales tax and the rest of the everyday bill?

Sales tax is the smallest of the four levers and the one people fixate on most. Indiana charges 7.00% and, because Indiana localities do not add their own, the average combined rate is also 7.00%. Ohio charges 5.75% at the state level but averages 7.3% combined once county piggyback taxes are counted. Michigan charges 6.00% with no local add-on, so the combined average stays at 6.00%. All three figures are from the Tax Foundation's 2026 state pages.

For a retired household spending, say, $18,000 a year on taxable goods, the gap between Michigan's 6.00% and Ohio's 7.3% is about $234 a year. Real money, but not decision money — and it's routinely swamped by the property tax difference on a single house.

The one place sales tax genuinely matters in this region is the border-town shopping pattern. People in Angola drive to Michigan, people in Fort Wayne drive to Ohio, and everybody thinks they're gaming the rate. Use tax exists in all three states, so the saving is usually smaller than the gas.

Is a border town the best of both worlds?

Sometimes, and not for the reason people assume. Living near the line doesn't let you pick your tax regime — your county of residence on January 1 decides that for Indiana purposes, and your domicile decides it everywhere else. What a border town does give you is a genuinely different housing market a short drive away.

Look at what the 2024 American Community Survey shows for three northeast Indiana communities. Fort Wayne had a median household income of $61,422 and a median property value of $188,900. Auburn, the DeKalb County seat, came in at $68,750 and $190,800. Angola, in Steuben County near the Michigan line, showed $64,540 and $205,400. Allen County as a whole ran higher on both counts, at $70,737 and $214,900.

Now layer the county income tax on top. Auburn has the highest county rate in the region at 2.13% and property values close to Fort Wayne's. Angola pays 1.99% with higher home values. Warsaw, in Kosciusko County, pays 1.00% — the lowest county rate in northeast Indiana by a wide margin. If you are genuinely mobile inside Indiana and pulling six figures out of retirement accounts, that county-rate spread is worth more than most people's entire sales tax bill.

None of which means you should move. It means that if you were already planning to move, the county line is worth ten minutes of arithmetic. If you'd rather see this with your own numbers in it, run it through the calculators before you talk to anyone.

Which state comes out ahead, honestly?

For the Kruses, Michigan — by about $1,660 a year once income and property tax are added together. For a couple with a much larger IRA, the answer flips, because Michigan's retirement subtraction has a ceiling and everything above it gets taxed at 4.25%. For a couple whose income is mostly Social Security with a small pension, Ohio's exemption of the first $26,050 plus its credits can put it in front. For a couple who owns an expensive house and takes modest withdrawals, Indiana's low property tax rate and 1% homestead cap can win outright.

That's the honest answer, and it's why the listicles are useless. The ranking depends on the shape of your income, not its size — how much is Social Security, how much is pension, how much comes out of a traditional account each year, and how much house you own.

Here's the part worth sitting with. The widest gap in the Kruse example was about $1,660 a year. A single badly sequenced year of withdrawals — pulling an extra $30,000 out of a traditional IRA in a year when it pushes more of your Social Security into the taxable column — can cost more than that, in one year, without anyone changing address. The state line is a real lever. It is not the biggest lever on the table.

The ranking depends on the shape of your income, not the size of it.

What does this have to do with insurance and the rest of the plan?

More than it looks like. Here's one concrete way the pieces collide, and it happens in this region constantly.

A couple retires at 64 in Whitley County. They decide to do Roth conversions in their first two years, before Social Security starts, to drain the traditional IRA at a low bracket. Good instinct. But the conversion income is Indiana taxable income, so it picks up the 2.95% state rate and Whitley County's 1.6829% — a combined 4.6329% that nobody modeled, because the spreadsheet they found online only had a state column. On a $120,000 two-year conversion that's about $5,560 of state and local tax that never appeared in the plan.

Second collision: the same couple has a 20-year term life policy bought at 45. It expires at 65. They converted the IRA to reduce future required distributions, which is sensible, but they now have a smaller tax-deferred balance and no death benefit, and one of them has a pension with a survivor election that pays 50%. If the higher earner dies at 70, the survivor loses a Social Security check and half the pension in the same month. That's a coverage question and a tax question at the same time, and the two get answered by two different people who never speak.

This is the whole argument for looking at all four pieces together. Insurance and annuity guarantees are backed by the claims-paying ability of the issuing carrier. Products are not FDIC-insured, not bank guaranteed, and may lose value — which is exactly why the coverage and the withdrawal plan need to be built on the same page rather than in two different offices.

How do you run this comparison yourself in an afternoon?

You don't need software. You need last year's tax return, a rough 2026 income estimate, and about ninety minutes. Do it in this order and you'll get a number you can trust more than any online calculator, because you'll know exactly what went into it.

Start with the federal layer, because it doesn't change when you move. Then do each state separately, and finish with the property tax, which is usually the deciding line and is almost always left out.

• Write down your 2026 income by type: Social Security, pension, traditional IRA or 401(k) withdrawals, taxable interest and dividends, and any wages.
• Run the federal Social Security worksheet in IRS Publication 915 to find how much of your benefit is federally taxable. Base amounts are $25,000 single and $32,000 joint; the 85% tier starts at $34,000 and $44,000.
• For Indiana: subtract Social Security, apply 2.95%, then add your county rate from Departmental Notice #1. Subtract up to $2,500 of Indiana property tax paid on your residence.
• For Ohio: subtract Social Security, exempt the first $26,050, apply 2.75%, then subtract the retirement income credit (up to $200) and the $50 senior credit if your modified AGI is under $100,000.
• For Michigan: subtract Social Security, then subtract eligible retirement income up to the annual maximum, and apply 4.25% to whatever is left.
• Multiply your home's value by 0.76% (IN), 1.36% (OH), or 1.19% (MI) for a first-pass property tax figure, then check the actual county rate where you'd live.
• Add the two together. That total — not the headline rate — is the number to compare.

Where does an advisor actually add something here?

In three specific places, and not in the fourth place most people expect. An advisor is not going to know your county's 2026 rate better than the Department of Revenue does; that's a two-minute lookup, and we just linked it.

What we do is the sequencing. The order you pull from taxable, tax-deferred, and tax-free accounts changes the federal number, the state number, and the county number all at once, and it compounds across a twenty-five year retirement. Getting that order right in the first five years is worth more than the state line in most cases we see.

The second place is coordination. Tim works as one independent advisor across insurance, financing, investments, and tax-incentive planning, appointed across 40+ carriers, so the conversion plan and the survivor coverage and the mortgage get looked at together instead of by four people who never compare notes. And the third place is the annual re-check: Indiana county rates change most years, Ohio's schedule has moved three times since 2024, and Michigan finished a four-year phase-in. A plan built on 2024 rules is already two revisions behind. If your situation has more than one moving part, that's the conversation to have.

The benefit is plain: you keep more of what you already earned, you don't accidentally hand a county 1.6829% of a Roth conversion you didn't have to do that year, and the surviving spouse isn't the one who finds out what the plan actually was.

Frequently asked questions

Do Indiana, Ohio, or Michigan tax Social Security benefits?

No. All three subtract Social Security from state taxable income. Indiana's Department of Revenue states that Indiana does not tax Social Security or railroad retirement benefits; Ohio deducts them under Ohio Revised Code 5747.01(A)(5)(a); and Michigan's Revenue Administrative Bulletin 2026-1 confirms a Social Security deduction. Federal tax on benefits still applies under IRS Publication 915 rules.

What is Indiana's income tax rate for 2026?

The state rate is 2.95% for 2026, per the Indiana Department of Revenue's Departmental Notice #1 effective January 1, 2026. Every Indiana county adds its own income tax on top. In northeast Indiana that ranges from 1.0000% in Kosciusko County to 2.1300% in DeKalb County, so a combined rate of 3.95% to 5.08% depending on where you live.

Does Michigan still tax pensions in 2026?

Michigan's retirement subtraction reaches 100% of eligible retirement income for tax year 2026, the last step of a four-year phase-in described in Michigan Treasury's Revenue Administrative Bulletin 2026-1. The subtraction is capped at an inflation-adjusted maximum — $65,897 single and $131,794 joint for 2025 — and anything above the cap is taxed at Michigan's flat 4.25%.

How much retirement income can Ohio retirees shelter?

Ohio exempts the first $26,050 of nonbusiness income for 2026 and taxes the rest at a flat 2.75%. Ohio Revised Code 5747.055 adds a retirement income credit that tops out at $200 for retirement income over $8,000, plus a $50 senior citizen credit at 65 and older. Both credits require modified adjusted gross income under $100,000.

Which of the three states has the lowest property tax?

Indiana. The Tax Foundation's 2026 state pages put effective property tax rates on owner-occupied housing at 0.76% in Indiana, 1.19% in Michigan, and 1.36% in Ohio. Indiana also caps homestead property tax at 1 percent of gross assessed value under its constitutional circuit breaker, with 2 percent on other residential and agricultural land and 3 percent on everything else.

If I move mid-year, which county income tax rate applies?

Indiana determines both your county of residence and your county of principal work as of January 1 of the year in which your taxable year begins, according to Departmental Notice #1. Moving from DeKalb County to Kosciusko County in March means you still pay the DeKalb rate for that year. Plan a move around that date if the rate difference matters to you.

Is it worth moving states just for the tax difference?

In the worked example here the widest gap between the three states was roughly $1,660 a year in combined income and property tax on $95,000 of retirement income. That is real money and it is also less than a single badly sequenced year of IRA withdrawals can cost. Look at withdrawal order, Social Security timing, and survivor coverage before you look at moving vans.

What is the average Social Security retirement benefit in 2026?

The Social Security Administration's 2026 cost-of-living adjustment fact sheet puts the average monthly benefit for all retired workers at $2,071 in 2026, up from $2,015 in 2025 after a 2.8% COLA. An aged couple with both spouses receiving benefits averages $3,208 a month. Maximum taxable earnings for 2026 are $184,500.