Clear Money Guide
What this state guide covers
A quick view of the questions, practical details and source notes below.
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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: 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 HB 1001 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.
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 possible (as low as 2.55% by 2030 if revenue conditions are met). 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 (offset by Social Security received).
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 deductions: civil-service annuities (up to $16,000 at 62+, SS-offset) and railroad retirement |
| 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| Estate / inheritance tax | None — inheritance tax repealed for deaths after Dec. 31, 2012 |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 personal property 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 are keyed to the same $100,000 (§§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.
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
Also on Indiana: when probate is required in Indiana.