Is Indiana Tax-Friendly for Retirees? (2026: The 2.95% Rate — Plus the County Tax Nobody Mentions)

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 taxes, which vary by county, and the statewide 7% sales tax (IC 6-2.5-2-2) are outside its scope.

Updated July 24, 2026. Quick answer: Mostly yes, with one asterisk the flat-tax summaries omit. Social Security is never taxed, and Indiana’s flat rate drops to 2.95% for 2026 (IC 6-3-2-1, cut by SEA 451 (P.L.80-2025) from 3% in 2025, with 2.9% scheduled for 2027) — among the lowest income-tax rates of any state that taxes retirement income at all. The asterisk: pensions, 401(k) and IRA withdrawals are fully taxable with no general retirement exclusion, and every Indiana county levies its own local income tax on the same base — so your real rate is 2.95% plus your county’s rate, a layer most guides never mention.

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

More state retirement-income schedules, line by line: Indiana Schedule 2 retirement deductions.

More on public pension systems, topic by topic: Indiana 1977 Fund disability retirement, Indiana 1977 Fund reemployment and Indiana 1977 Fund COLA.

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

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

Before the tax question, the 1977 police and firefighters fund, with its rules from its own handbook: Indiana 1977 Fund retirement decisions.

Drawing a pension? Whether the state withholds tax from it, from its own documents: Indiana 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 Indiana a community property state?.

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

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

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

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

For trust income specifically: does Indiana tax trust income.

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

Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Indiana have an inheritance tax?.

For annuity payments specifically: does Indiana tax annuity income.

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

For military retired pay: does Indiana tax military retirement.

Saving for a child’s college? The state’s 529 break has its own page: Indiana 529 plan tax deduction.

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

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

More on Indiana: Medicaid Home Equity Limit in Indiana and Indiana Probate Filing Fee.

Related state retirement tax guides: Does Indiana Tax Roth Conversions? 2026.

The 2026 rate correction (and the county layer)

Guides quoting 3% or 3.05% are describing prior years: the state rate is 2.95% for tax year 2026, with further trigger-based cuts of 0.05 percentage points possible in later two-year windows if state revenue tests are met (the first possible cut, to 2.85%, would apply to tax years after December 31, 2029). But Indiana’s county local income tax applies to the same taxable income — including retirement-plan withdrawals — at rates that vary by county, so a retiree comparing Indiana to a true no-tax state should compare the combined rate. The only meaningful carve-outs beyond Social Security: military retirement and survivor benefits are 100% deductible (IC 6-3-2-4), and civil-service annuitants 62+ can deduct up to $16,000, less Social Security and railroad retirement benefits received (IC 6-3-2-3.7).

How Indiana taxes retirement income (statute-cited)

Income tax	Flat 2.95% for 2026 (IC 6-3-2-1; was 3% in 2025) plus county local income tax in all 92 counties
Social Security	Not taxed (fully deducted)
Pension / 401(k) / IRA	Fully taxable at the state + county level; no general retirement exclusion. Limited deduction: federal civil-service annuities (up to $16,000 at 62+, less Social Security and railroad retirement benefits received; IC 6-3-2-3.7). Railroad Retirement benefits included in federal gross income under Section 86 are subtracted in full (IC 6-3-1-3.5(a)(8))
Military retirement	100% deductible (IC 6-3-2-4)
Estate / inheritance tax	None — inheritance tax repealed for deaths after Dec. 31, 2012

Probate: the $100,000 affidavit correction

Indiana’s small-estate affidavit limit is $100,000 of gross probate estate (wherever located, less liens, encumbrances and reasonable funeral expenses) for deaths after June 30, 2022 (Ind. Code §29-1-8-1) — the $50,000 figure still circulating on legal-content sites is four years stale. The affidavit carries a 45-day wait and doesn’t reach real estate; summary closing procedures use the same $100,000 plus the costs and expenses of administration and reasonable funeral expenses (§§29-1-8-3, -8-4). Above that, compensation for personal representatives and attorneys is “just and reasonable” (Ind. Code §29-1-10-13) — county courts publish guideline schedules, but they are not statutory. Context: probate cost by state · small-estate limits by state.

The verdict for 2026

Indiana is tax-friendly the way a discount is friendly: nothing is sheltered, but the rate on what’s taxed is low and falling. A retiree with $60,000 of 401(k) withdrawals pays roughly $1,770 to the state at 2.95% — plus the county layer — while Social Security rides free and there are no death taxes. Pension-heavy retirees who’d be fully exempt in Illinois or Pennsylvania should run that comparison before assuming the low flat rate wins.

Indiana vs. common alternatives

State	Social Security	Pension / 401(k) / IRA	Estate tax	Inheritance tax
Indiana	Not taxed	Fully taxable (state + county)	None	None (repealed 2012)
Illinois	Not taxed	Not taxed (all retirement income exempt)	Yes — $4M cliff, not indexed	None
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

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 Indiana may treat it differently from the retirement income above — see how all 51 jurisdictions tax Roth conversions.

Finding a financial advisor in Indiana

Per the SEC’s July 2026 Investment Adviser roster, Indiana has 149 SEC-registered advisory firms (#24 nationally) managing $225.5 billion (#30 by AUM). Full breakdown: Indiana advisor statistics. Reviewing fee structures: fee-drag calculator.

What probate costs in Indiana

Indiana sets probate compensation by a “reasonable fee” standard with no percentage schedule, so anyone quoting a firm figure is estimating. And the small-estate shortcut of $100,000 does not clear a solely owned house on its own, which is the detail most guidance omits. Full detail with the governing statute, the court filing fee and the threshold: Indiana probate cost. To price a specific estate, use the probate cost calculator.

Cite or share this guide

Suggested citation: Clear Money Guide, “Indiana Retirement Taxes (2026 edition),” statute-cited; clearmoneyguide.com/indiana-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 the Indiana Department of Revenue rates page, Departmental Notice #1 and Tax Chapter, Income Tax Information Bulletins #6 and #27, the DOR inheritance tax notice, and the Indiana small estate affidavit forms on September 30, 2026; the Indiana Code section texts, the county tax count, the probate compensation cites and the Kentucky comparison row were not re-checked.

Primary sources

• https://www.in.gov/dor/files/ib27.pdf
• https://taxfoundation.org/research/all/state/2026-state-tax-changes/
• https://taxfoundation.org/data/all/state/state-income-tax-rates-2026/
• https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
• https://www.cchalaw.com/our-news/small-estate-affidavit-now-available-to-estates-worth-100-000-or-less
• https://law.justia.com/codes/indiana/title-33/article-37/chapter-4/section-33-37-4-7/
• https://www.co.greene.in.us/topic/index.php?topicid=112&structureid=13