How Kentucky taxes retirement income
Kentucky does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are partly taxed (there is an exclusion, then the rest is taxed). Kentucky does NOT tax Social Security benefits at all, Kentucky Schedule M (Form 740, 2025) instructs filers to subtract the full taxable amount of Social Security and Railroad Retirement Board benefits from federal AGI (Schedule M, line 10), so 100% of Social Security is exempt. Pension, 401(k), IRA, annuity, and other qualifying retirement-plan distributions ARE partially exempt: Kentucky allows a pension income exclusion of the lesser of 100% of taxable retirement income or $31,110 per taxpayer (2025 figure; each spouse computes their own exclusion, so a joint return can shelter up to $62,220). Amounts above the exclusion are taxed at the flat rate. Government pension income (federal, KY state, or KY local) attributable to service credit earned before January 1, 1998 is separately, fully exempt on top of the $31,110 exclusion (Schedule P). A bill (HB 146, 2025 RS) proposed raising the exclusion to $41,110 for tax years beginning in 2026, but enactment could not be confirmed from a primary source as of this verification, so the confirmed $31,110 figure is used.
Retirement income tax in Kentucky, at a glance
| Income type | Taxed by Kentucky? |
|---|---|
| Social Security | No |
| Pensions | Partially (exclusion applies) |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | Inheritance tax |
| Avg. property tax rate | 0.74% of home value |
Does Kentucky tax Social Security benefits?
No. Kentucky does not tax Social Security benefits.
Does Kentucky tax pensions and 401(k) or IRA withdrawals?
Partly. Kentucky does NOT tax Social Security benefits at all, Kentucky Schedule M (Form 740, 2025) instructs filers to subtract the full taxable amount of Social Security and Railroad Retirement Board benefits from federal AGI (Schedule M, line 10), so 100% of Social Security is exempt. Pension, 401(k), IRA, annuity, and other qualifying retirement-plan distributions ARE partially exempt: Kentucky allows a pension income exclusion of the lesser of 100% of taxable retirement income or $31,110 per taxpayer (2025 figure; each spouse computes their own exclusion, so a joint return can shelter up to $62,220). Amounts above the exclusion are taxed at the flat rate. Government pension income (federal, KY state, or KY local) attributable to service credit earned before January 1, 1998 is separately, fully exempt on top of the $31,110 exclusion (Schedule P). A bill (HB 146, 2025 RS) proposed raising the exclusion to $41,110 for tax years beginning in 2026, but enactment could not be confirmed from a primary source as of this verification, so the confirmed $31,110 figure is used.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- Kentucky taxation of retirement income (Social Security, pensions, 401(k)/IRA): Kentucky Department of Revenue / Taxation.
- Kentucky estate / inheritance tax: Kentucky tax authority.