Kentucky Retirement Taxes (2026): 3.5% Rate & Inheritance Tax

How Kentucky taxes retirement income in 2026 (statute-cited)

The inheritance tax, by heir class (KRS 140.070, 140.080)

Probate costs

Is Kentucky a good state to retire in for taxes?

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2026 edition · statute-cited · part of Clear Money Guide’s 51-state retirement tax series. This guide covers state taxes on retirement income and estate transfers; property and sales taxes vary by county and are outside its scope.

Updated July 24, 2026. Quick answer: Kentucky’s flat rate is 3.5% for 2026, set by HB 1 (signed February 6, 2025) for tax years beginning on or after January 1, 2026, down from 4%. Social Security is fully exempt, and the first $31,110 per person of pension, annuity, 401(k) and IRA income is excluded (KRS 141.019, Schedule P). The catch is at death: Kentucky is one of the last states with an inheritance tax — though the closest family, including siblings, inherits tax-free.

Federal civil service pensions in Kentucky: does Kentucky tax federal pensions.

State retirement-income forms, line by line: Kentucky Schedule M.

Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Kentucky tax on inherited IRA withdrawals.

Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Kentucky tax 403(b) and 457(b) withdrawals.

Before the tax question, the state police system (SPRS), with its options and refund rules from its own documents: Kentucky SPRS retirement decisions.

Before the tax question, the county employees’ system (CERS), with its options and refund rules from its own documents: Kentucky CERS retirement decisions.

Drawing a pension? Whether the state withholds tax from it, from its own documents: Kentucky tax withholding on pension payments.

Married, or planning for a spouse’s death? Whether the state is a community property state, from its own statutes: Is Kentucky a community property state?.

Selling your home? How the state taxes the profit, from its own tax documents: Does Kentucky tax the profit from selling your home?.

The state’s income tax schedule: the Kentucky tax brackets for 2026.

Withdrawing from an IRA or 401(k)? Whether the state withholds tax from it, from its own documents: Kentucky tax withholding on IRA and 401(k) withdrawals.

For a pension earned elsewhere or paid after you move: does Kentucky tax out-of-state pensions.

For trust income specifically: does Kentucky tax trust income.

For dividends and interest specifically: does Kentucky tax dividends and interest.

Contributing to an HSA? How the state taxes it, from its own tax documents: Does Kentucky tax HSA contributions?.

For annuity payments specifically: does Kentucky tax annuity income.

Planning for what you leave behind? The state’s estate tax answer, from its own tax documents: Does Kentucky have an estate tax?.

For military retired pay: does Kentucky tax military retirement.

For the sale of stocks, funds or real estate: does Kentucky tax capital gains.

For 401(k) and IRA withdrawals specifically: does Kentucky tax 401(k) and IRA withdrawals.

More on Kentucky: Kentucky Power of Attorney Requirements, Kentucky LLC Annual Report and How to Reinstate a Corporation in Kentucky.

How Kentucky taxes retirement income in 2026 (statute-cited)

Income tax rate	Flat 3.5% (HB 1, 2025 — down from 4% in 2025)
Social Security	Not taxed (fully excluded)
Pension / 401(k) / IRA	Excluded up to $31,110 per person across pensions, annuities, 401(k) and IRA distributions (KRS 141.019, Schedule P); 3.5% above
Federal, Kentucky state and Kentucky local government pensions (pre-1998 service)	Fully exempt beyond the cap for income attributable to service before 1/1/1998 (Schedule P exempt-percentage calculation)
Military retirement	Pre-1998 service portion of federal retired pay is exempt through Schedule P; other pension income is excluded up to $31,110 per person, and amounts above that may be taxable
Estate tax	None (KY DOR: “There is no Kentucky estate tax”)

Worked example: a single retiree with $40,000 of pension/IRA income and Social Security has $8,890 above the exclusion. Kentucky’s 2026 standard deduction is $3,360, so net income is $5,530 and the tax at 3.5% is about $194 if there is no other income. A couple each under $31,110 pays $0 — the exclusion is per person, not per household.

The inheritance tax, by heir class (KRS 140.070, 140.080)

Class	Who	Treatment
A	Spouse, parents, children, grandchildren, siblings and half-siblings, and nieces and nephews (incl. half)	Fully exempt (deaths after 6/30/1998; nieces and nephews for deaths on or after 1/1/2026)
B	Sons/daughters-in-law, aunts/uncles, great-grandchildren	$1,000 exemption, then 4%–16% graduated
C	Everyone else	$500 exemption, then 6%–16% graduated

Unlike Pennsylvania and New Jersey, Kentucky’s Class A covers siblings — so the tax lands mainly on extended family and non-relatives. Estates passing to friends, aunts, uncles or in-laws should plan around the graduated 4% to 16% schedules; nieces and nephews are Class A for decedents who died on or after January 1, 2026. National context: inheritance tax by state.

Probate costs

Personal-representative compensation is statutorily capped at 5% of the personal estate plus 5% of income collected (KRS 395.150); the court may allow more for proven extra services. Small estates: the $30,000 spousal/child personal-property exemption (KRS 391.030) underpins Kentucky’s dispense with administration procedure (KRS 395.455), letting District Court skip administration for qualifying small estates. Context: probate cost by state · small-estate limits by state · will vs. trust calculator.

Is Kentucky a good state to retire in for taxes?

For income: quietly strong — Social Security untaxed, $31,110/person sheltered, and just 3.5% on the rest (any further cut requires action by the General Assembly); a typical couple pays little or nothing. For estates: fine if your heirs are immediate family or siblings (all Class A, exempt); plan carefully if friends, aunts, uncles or in-laws inherit (nieces and nephews are Class A for 2026 deaths). The comparison below shows Kentucky holding its own against no-tax Tennessee for most retiree incomes.

Kentucky is one of 43 jurisdictions that do not tax Social Security at any income level in 2026. The other 8 exempt benefits only up to an income or age limit. Full rules and statutes: the 51-state table.

Kentucky vs. its neighbors

State	Social Security	Pension / 401(k) / IRA	Estate tax	Inheritance tax
Kentucky	Not taxed	Excluded up to $31,110/person; 3.5% above	None	Yes — Class B/C heirs (4–16%)
Tennessee	Not taxed	Not taxed (no income tax)	None	None
Ohio	Not taxed	Taxed at flat 2.75% over $26,050; small credits	None (repealed 2013)	None
Indiana	Not taxed	Fully taxable (state + county)	None	None (repealed 2012)

Comparison rows summarize general rules; see our 51-state retirement tax table for statute-cited detail.

Considering a Roth conversion? The converted amount is taxed as ordinary income in the year you convert, and Kentucky’s Department of Revenue lists “income received from converting a regular IRA to a Roth IRA” among the retirement income eligible for its pension exclusion of up to $31,110 per taxpayer. See how all 51 jurisdictions tax Roth conversions.

Finding a financial advisor in Kentucky

Per the SEC’s July 2026 Investment Adviser roster, Kentucky has 86 SEC-registered advisory firms (#30 nationally) managing $80.9 billion (#37 by AUM). Full breakdown: Kentucky advisor statistics. Reviewing fee structures before or after a move: fee-drag calculator.

What probate costs in Kentucky

Kentucky uses a hybrid standard — a statutory ceiling or floor with reasonableness applied inside it — so the fee has a bound but not a fixed number. The $30,000 exemption in KRS 391.030 is written for “personal property or money on hand or in a bank or other depository,” so it does not by its terms reach real property. Full detail with the governing statute, the court filing fee and the threshold: Kentucky probate cost. To price a specific estate, use the probate cost calculator.

Cite or share this guide

Suggested citation: Clear Money Guide, “Kentucky Retirement Taxes (2026 edition),” statute-cited; clearmoneyguide.com/kentucky-retirement-taxes/. Free to cite with attribution and a link. Data verified July 23–24, 2026 against state statutes, session laws, and revenue-department guidance.

Figures verified against KRS 140.070 and 140.080 as amended by 2026 Kentucky Acts chapter 198, KRS 391.030, 395.150 and 395.455, the text and legislative record of 2025 House Bill 1, and the Kentucky Department of Revenue inheritance-tax page on September 30, 2026; the 2027 rate outcome, the pre-1998 government and military pension treatment, the neighboring-state comparison rows and the SEC adviser roster figures were not re-checked.

Kentucky Retirement Taxes (2026): The 3.5% Flat Rate, the $31,110 Exclusion, and the Inheritance Tax

What this state guide covers