November 4, 2026
[Redacted Text]
Re: Request for Letter Ruling - Michigan Tax Treatment of Distributions Made Under a 409A Plan
Dear [Redacted Text]:
Thank you for your letter dated [Redacted Text], requesting guidance on the Michigan tax treatment of distributions you receive from a 409A plan that you established with your former employer prior to retirement. Michigan law uses retirement and pension benefits interchangeably. For clarity, this response will exclusively refer to those benefits as “retirement benefits.”
The Michigan Department of Treasury (“Department”), in its sole discretion, may decline to issue a letter ruling and instead issue a technical advice letter or other informal guidance if it determines that a letter ruling “is not the necessary and appropriate means to resolve or clarify the issue presented in the request.” RAB 2016-20. Because the Department has made such a determination with respect to your request, the Department is issuing this technical advice letter. Only the specific taxpayer identified in a technical advice letter may rely on the Department’s position stated therein and only to the extent provided in RAB 2016-20.
Facts
The facts pertinent to your request indicate that in consideration of you remaining employed for an additional 5 years with your former employer, your employer agreed to pay you and your spouse [Redacted Text] a year for the remainder of your joint lives. This Non-Qualified Deferred Compensation Agreement (agreement) was established under IRC 409A for the purpose of establishing an “excess benefit plan” as defined by 29 U.S.C. § 1002(36). Per the agreement at [Redacted Text], the benefits will remain [Redacted Text]. Additionally, under [Redacted Text] of the agreement, [Redacted Text]. And you and your wife are currently residents of Michigan and receive distributions from the 409A plan.
Question
Are distributions from the 409A plan detailed in the included request considered qualified retirement benefits under Michigan law, thus making the distributions eligible for the Michigan deduction of retirement benefits?
Conclusion
No, distributions from your 409A plan established with your former employer are not considered retirement benefits under Michigan law, because they are not distributed from a pension trust. Thus, you may not subtract such distributions from Michigan taxable income using the Michigan retirement subtraction.
Analysis
Michigan law allows certain individuals, depending on the given tax year and the taxpayer’s year of birth, to deduct a certain portion of their retirement benefits included in adjusted gross income (AGI). See MCL 206.30(1)(f); 206.30(10); 206.30(11). For benefits to be eligible for the deduction, they must both be within the definition of retirement benefits under MCL 206.30(8)(a)–(c) and not excluded from the definition under MCL 206.30(8)(d).
Section 30(8)(a) defines the distributions from qualified plans under IRC 401, 408, and 403 that are considered retirement benefits, and Section 30(8)(c) extends the definition of retirement benefit to benefits received by a surviving spouse that would have qualified under Section 30(8)(a) or 30(8)(b) if received by the deceased spouse. Section 30(8)(b) specifically defines the distributions that are considered retirement benefits that are dispersed from plans that are not qualified under the IRC. Those plans include:
(i) Plans of the United States, state governments other than this state, and political subdivisions, agencies, or instrumentalities of this state.
(ii) Plans maintained by a church or a convention or association of churches.
(iii) All other unqualified pension plans that prescribe eligibility for retirement and predetermine contributions and benefits if the distributions are made from a pension trust.
The 409A plan you have with your former employer is not a qualified plan under the IRC; thus, Section 30(8)(b) would determine whether the distributions are retirement benefits. The plan does not fall under (i) or (ii) above, so it would need to fall under the catchall provision of (iii) for distributions from the agreement to be considered retirement benefits.
Per [Redacted Text] of the agreement, the agreement does prescribe eligibility for retirement and predetermine the benefits to be paid. However, under [Redacted Text] of the agreement, the benefit will remain “unfunded” for the life of the agreement, meaning the benefits are not placed into a separate account or otherwise set aside from general company assets. Additionally, under [Redacted Text] of the agreement, benefit payments will be made from the general fund of the company. These provisions reflect that future distributions will be paid directly from the company’s general assets and not from a trust. Because the distributions from your 409A plan are therefore not paid from a pension trust, they are not retirement benefits under MCL 206.30(8)(b)(iii), and the distributions cannot be subtracted from Michigan taxable income using the Michigan retirement subtraction.
Sincerely,
/s/ David Foos
David Foos, Administrator
Direct Taxes Division
Bureau of Tax Policy