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 — cut from 4% by HB 1 (signed February 2025) via the state’s revenue-trigger mechanism, and many ranking guides still quote the old 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.
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 |
| 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 fully exempt; post-1997 portion falls within the $31,110 exclusion |
| Estate tax | None (KY DOR: “There is no Kentucky estate tax”) |
Worked example: a retiree with $40,000 of pension/IRA income and Social Security pays Kentucky tax on just $8,890 (the amount over the exclusion): about $311. 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 | Fully exempt (deaths after 6/30/1998) |
| B | Nieces/nephews (incl. half), 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 nieces, nephews or friends should plan around the graduated 4–16% schedules. 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% (and trigger-scheduled to keep falling) on the rest; 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 nieces, nephews or friends inherit. The comparison below shows Kentucky holding its own against no-tax Tennessee for most retiree incomes.
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 may treat it differently from the retirement income above — 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.
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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. Whether its small-estate route of $30,000 reaches real property is not clearly stated in the statute, so treat that as unresolved rather than permission. 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.
Primary sources
- https://support.taxslayer.com/hc/en-us/articles/360015904651-Is-my-retirement-income-taxable-to-Kentucky
- https://taxfoundation.org/research/all/state/2026-state-tax-changes/
- https://taxfoundation.org/data/all/state/state-income-tax-rates-2026/
- https://revenue.ky.gov/Individual/Inheritance-Estate-Tax/Pages/default.aspx
- https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=36328
- https://codes.findlaw.com/ky/title-xxxiv-descent-wills-and-administration-of-decedents-estates/ky-rev-st-sect-391-030/