Updated October 16, 2026. Quick answer: Indiana’s documents read give IRA withdrawals no deduction and do not mention inherited IRAs: the Department says “Indiana does not tax Social Security and railroad retirement benefits”, names only civil service, military and disability retirement deductions, and prints a 2026 rate of 2.95% plus county income tax.
Indiana at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income; no IRA deduction in the documents read |
| Do the state’s documents address beneficiaries? | Not addressed: the documents read do not mention inherited accounts |
| Retirement exclusion or credit | None for IRAs; a civil service annuity deduction of up to $16,000 at age 62 or older, and separate military and disability retirement deductions |
| Rate in the documents read | 2.95% for 2026, adjusting to 2.90% in 2027, plus county income tax |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The rates page prints 2.95% for 2026 and 2.90% for 2027 |
What the Indiana documents say
The Department’s deductions page says Indiana does not tax Social Security and railroad retirement benefits. It describes a civil service annuity deduction for filers at least 62, who “may be eligible for up to a $16,000 deduction”. It does not describe a deduction for IRA distributions.
The rates page prints the rate: “The Indiana Individual adjusted gross income tax rate for 2026 is 2.95%”. It says the rate will adjust in 2027 to 2.90%, and county income tax rates also apply.
The federal 10-year rule and your Indiana tax year
IRS Publication 590-B says a beneficiary may be required to take the entire account balance by the “end of the 10th year following the year of the owner’s death”, with exceptions for certain beneficiaries. Because the balance generally has to come out within that window, the timing of each withdrawal decides which tax year it lands in. See the 10-year rule and annual RMDs, lump sum versus spreading withdrawals and inherited IRA rules.
Withholding and other state taxes
Whether a state withholds from a withdrawal is a separate rule: see state withholding on retirement withdrawals. For Indiana’s own death taxes, see Indiana inheritance tax.
What the documents do not say
- The documents read do not mention inherited accounts or beneficiaries of retirement accounts.
- The booklet covers a deceased taxpayer’s final return, which is a different question from a beneficiary’s withdrawals.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
Common mistakes
- Assuming Indiana’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with a Indiana preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Indiana taxes 401(k) and IRA withdrawals, Indiana retirement taxes, Indiana inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 IT-40 Income Tax Instruction Booklet: https://forms.in.gov/Download.aspx?id=16915
- Individual Deductions: https://www.in.gov/dor/i-am-a/individual/deductions
- Rates, Fees & Penalties: https://www.in.gov/dor/resources/tax-rates-and-reports/rates-fees-and-penalties
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/pub/irs-pdf/p590b.pdf
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.