Updated October 7, 2026. Quick answer: No, not as a rule. Kentucky’s employer instructions ask “Is Kentucky tax required to be withheld on pensions?” and answer no: “Kentucky tax may be withheld voluntarily”, but is not required.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Kentucky tax withholding on pension payments.
Kentucky withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | No. The Department of Revenue’s guide lists pensions, IRAs and 401(k) plans as not required |
| Rate or amount | Not stated in the guide read |
| How to start or stop it | Not stated in the guide read; ask the payer |
| Direct rollover | Not stated in the documents read |
| Changed for 2026? | No change stated; the guide read was revised October 2025 |
What the Kentucky documents say
The Department of Revenue’s Withholding Kentucky Income Tax Instructions for Employers (42A003) has a table of payment types and whether Kentucky withholding is required. It marks “Pensions Not Required”, and it marks IRA and 401(k) plan payments not required as well.
In its questions section it asks “Is Kentucky tax required to be withheld on pensions?” and the answer begins with no: “Kentucky tax may be withheld voluntarily”, but is not required.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. Kentucky adds nothing on its own: the guide marks it not required, so the Kentucky amount withheld is $0 unless the payer withholds voluntarily. The guide names no rate and no form for that.
The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. The Kentucky documents read do not say how a direct rollover is treated for state withholding, so confirm it with the payer before choosing.
What a mover should know
This page is about Kentucky as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it.
What the documents do not say
- The one document read is an employer guide, so it speaks to payers. It names no rate, form or statute, does not address a direct rollover, and states no change for 2026. The guide’s table marks some payment types with an asterisk that this page does not interpret.
Common mistakes
- Reading not required as not taxable; a withdrawal that Kentucky taxes is still reported on the return.
- Assuming a voluntary Kentucky withholding option has a standard form; the guide read does not name one.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: how Kentucky taxes 401(k) and IRA withdrawals, Kentucky retirement taxes, retirement withholding calculator, and retirement taxes by state.
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Answer againSources
- Withholding Kentucky Income Tax Instructions for Employers (42A003): https://revenue.ky.gov/Forms/42A003.pdf
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 7, 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.