Does Indiana Tax Retirement Income?
Indiana exempts Social Security and military retirement pay and taxes almost everything else at a low flat 2.95% for 2026, but every county adds its own income tax on top, and there is no general retirement exclusion.
A guide by Taxstra Tax & Accounting · CPA-led tax strategy for business owners
Quick answer
Indiana exempts Social Security and military retirement pay and taxes almost everything else at a low flat 2.95% for 2026, but every county adds its own income tax on top, and there is no general retirement exclusion. The top state individual income-tax rate shown for 2026 is 2.95%.
Official sources: Indiana Department of Revenue, tax rates, fees and penalties
How Indiana Treats Each Retirement Income Stream
| Income stream | Indiana treatment |
|---|---|
| Social Security | Social Security and Tier 1 Railroad Retirement benefits included in federal AGI are deducted in full, so Indiana does not tax them. |
| Public and private pensions | Private and most public pension income is fully taxable at the flat state rate plus the county rate. The main carve-out is a civil service annuity deduction of up to $16,000 for federal civil service annuitants age 62 and older, reduced dollar for dollar by Social Security and Tier 1 Railroad Retirement benefits received. |
| Traditional 401(k) and IRA withdrawals | Traditional 401(k) and IRA withdrawals are fully taxable. Indiana offers no age-based deduction or exclusion for retirement account distributions. |
| Military retirement pay | Military retirement pay and survivor benefits are fully deductible from Indiana adjusted gross income for 2022 and later years. |
Indiana's pitch to retirees is simplicity and a falling rate, 2.95% in 2026 and scheduled to reach 2.9% in 2027, not targeted exclusions. The county income tax is the piece out-of-state comparisons routinely miss, since it applies to retirement income and ranges from under 1% to about 3%.
The State Exclusion That Changes the Math
There is no general age- or income-based retirement exclusion. The targeted breaks are the Social Security deduction, the full military retirement deduction, and the capped civil service annuity deduction.
Model the actual eligibility rule
Where you live inside Indiana changes the bill. County rates apply to the same taxable base as the state rate, so a retiree in a high-rate county can pay roughly double the state-only figure. Model the combined rate, not the headline 2.95%.
A Worked Retirement-Income Example
A 68-year-old with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension pays no Indiana tax on the Social Security but generally owes tax on the full $60,000 of account and pension income. At the 2.95% state rate that is about $1,770, plus county tax of roughly $300 to $1,800 depending on the county, before exemptions.
This is a state-income example, not a tax return
Federal tax, local income tax, filing status, deductions, basis, Roth treatment, residency, and plan-specific rules can change the result. Use the example to compare structure, not as individualized tax advice.
Military Retirement and Transfer-Tax Fine Print
Military retirement: Military retirement pay and survivor benefits are fully deductible from Indiana adjusted gross income for 2022 and later years.
Estate and inheritance tax: Indiana has no estate tax, and its inheritance tax was repealed for deaths after 2012.
Should Retirement Taxes Drive a Move to Indiana?
Indiana's pitch to retirees is simplicity and a falling rate, 2.95% in 2026 and scheduled to reach 2.9% in 2027, not targeted exclusions. The county income tax is the piece out-of-state comparisons routinely miss, since it applies to retirement income and ranges from under 1% to about 3%.
Where you live inside Indiana changes the bill. County rates apply to the same taxable base as the state rate, so a retiree in a high-rate county can pay roughly double the state-only figure. Model the combined rate, not the headline 2.95%.
Compare the annual retirement-income result with property tax, insurance, sales tax, health-care access, housing cost, and the residency facts needed to leave the former state. For a broader comparison, use our 51-jurisdiction retirement tax table.
Indiana Retirement Tax FAQs
Planning retirement income in Indiana?
We can model the state and federal interaction before a large distribution, Roth conversion, or interstate move. The initial consultation is free. Educational content is not individualized tax advice.