How Indiana taxes retirement income
Indiana does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are partly taxed (there is an exclusion, then the rest is taxed). Social Security and railroad retirement (tier 1 and tier 2) benefits are fully exempt from Indiana income tax. Civil service annuities receive a partial deduction under IC 6-3-2-3.7: up to $16,000 of federal civil service annuity received (2016 and after) minus any Social Security/railroad retirement tier 1 & 2 benefits received; the recipient must be age 62+ (no age requirement for a qualifying surviving spouse). Military retirement pay and survivor's benefits received due to active or reserve service (including U.S. Space Force, Public Health Service Commissioned Corps, and NOAA Commissioned Officer Corps service as of Jan. 1, 2025) are 100% deductible, i.e., fully exempt, for tax year 2022 and after under IC 6-3-2-4, with no minimum-age requirement (the age-60 requirement was eliminated for taxable years after 2017). Regular private pension income and traditional IRA/401(k) distributions have no Indiana-specific exemption and are taxed as ordinary income at the flat 2.95% rate. Early distributions before age 59 1/2 remain subject to the federal 10% additional tax if no exception applies.
Retirement income tax in Indiana, at a glance
| Income type | Taxed by Indiana? |
|---|---|
| Social Security | No |
| Pensions | Partially (exclusion applies) |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | None |
| Avg. property tax rate | 0.76% of home value |
Does Indiana tax Social Security benefits?
No. Indiana does not tax Social Security benefits.
Does Indiana tax pensions and 401(k) or IRA withdrawals?
Partly. Social Security and railroad retirement (tier 1 and tier 2) benefits are fully exempt from Indiana income tax. Civil service annuities receive a partial deduction under IC 6-3-2-3.7: up to $16,000 of federal civil service annuity received (2016 and after) minus any Social Security/railroad retirement tier 1 & 2 benefits received; the recipient must be age 62+ (no age requirement for a qualifying surviving spouse). Military retirement pay and survivor's benefits received due to active or reserve service (including U.S. Space Force, Public Health Service Commissioned Corps, and NOAA Commissioned Officer Corps service as of Jan. 1, 2025) are 100% deductible, i.e., fully exempt, for tax year 2022 and after under IC 6-3-2-4, with no minimum-age requirement (the age-60 requirement was eliminated for taxable years after 2017). Regular private pension income and traditional IRA/401(k) distributions have no Indiana-specific exemption and are taxed as ordinary income at the flat 2.95% rate. Early distributions before age 59 1/2 remain subject to the federal 10% additional tax if no exception applies.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- Indiana taxation of retirement income (Social Security, pensions, 401(k)/IRA): Indiana Department of Revenue / Taxation.