Updated October 4, 2026. Quick answer: Yes. Indiana starts from federal adjusted gross income, and its booklet prints no exclusion for 401(k) or IRA withdrawals. The rate for 2026 is 2.95%, and counties add their own income tax.
More state retirement-income schedules, line by line: Indiana Schedule 2 retirement deductions.
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.
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.
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?.
What Indiana does with 401(k) and IRA withdrawals
The booklet’s Social Security and Railroad Retirement lines say “Do not enter any other types of pension or retirement”. The deductions it does print are for military retirement (“the deduction is equal to the entire amount of military retirement income”) and certain federal civil service annuities.
| Item | What the documents say |
|---|---|
| Treatment | Taxable; no private-plan exclusion printed |
| State rate | 3% for 2025 (in the booklet’s credit worksheet), 2.95% for 2026, 2.90% in 2027 |
| Source | Indiana Department of Revenue, 2025 IT-40 booklet and income tax rates page |
A $40,000 withdrawal
A $40,000 withdrawal adds $1,180 of Indiana state tax at the 2026 rate (computed as $40,000 times 2.95%), before any exemption or deduction. County tax is extra.
What changes in 2026
The Department’s rates page says “The Indiana Individual adjusted gross income tax rate for 2026 is 2.95%”.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.
Related: whether Indiana taxes pensions, how Indiana taxes retirement income, whether Indiana taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- 2025 IT-40 Income Tax Instruction Booklet (SP 265, rev. 12/25): https://forms.in.gov/Download.aspx?id=16915
- Rates, Fees & Penalties (Income tax rates): https://www.in.gov/dor/resources/tax-rates-and-reports/rates-fees-and-penalties
- Individual Deductions (Civil Service Annuity, Disability Retirement, Military Retirement): https://www.in.gov/dor/i-am-a/individual/deductions
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.