Indiana Taxes on Pensions, IRAs, and 401(k)s

If you’re retired or planning retirement in Indiana, it’s important to understand how the state taxes your retirement income.

Indiana taxes most pension and retirement account withdrawals, but certain military benefits receive special treatment.

You can feel reassured knowing Indiana does not tax Social Security benefits at the state level.

Indiana Income Tax Overview

Indiana uses a flat state income tax rate. The state begins with your federal Adjusted Gross Income (AGI) and applies Indiana-specific adjustments and credits.

In addition to the state income tax, most counties in Indiana impose a county income tax. County rates vary by location and apply to retirement income as well.

Pension Income in Indiana

Indiana generally taxes pension income as ordinary income.

This includes:

• Private employer pensions

• Government pensions

• Federal civil service pensions

Pension income that is taxable federally is typically taxable in Indiana.

Example:
If you receive $40,000 from a private pension, that amount is generally subject to Indiana state and county income tax.

IRA Withdrawals

Traditional IRA withdrawals are taxable in Indiana because they are included in federal taxable income.

This includes:

• Regular withdrawals

• Required Minimum Distributions (RMDs)

• Early withdrawals

Roth IRA qualified distributions are generally not taxable because they are not included in federal taxable income.

Example:
If you withdraw $20,000 from a traditional IRA, that amount is typically taxable in Indiana.

401(k) and 403(b) Withdrawals

Distributions from 401(k) and 403(b) plans are generally taxable in Indiana if they are taxable federally.

Both lump-sum withdrawals and periodic payments are treated as ordinary income.

Roth 401(k) qualified distributions are generally not taxable at the state level if they are not taxable federally.

Social Security Benefits

Indiana does not tax Social Security benefits.

If part of your Social Security is taxable at the federal level, it is still exempt from Indiana state income tax.

Military Retirement Income

Indiana provides favorable treatment for military retirement income.

Military retirement pay may qualify for a full or partial exemption from Indiana state income tax, depending on current state rules.

Veterans’ disability benefits are not taxable because they are not included in federal taxable income.

County Income Taxes

In addition to the state income tax, Indiana counties impose local income taxes.

These county taxes apply to most retirement income, including pensions and IRA withdrawals.

The combined state and county tax rate depends on your county of residence.

Planning Tips for Indiana Retirees

• Social Security is fully exempt

• Most pensions and retirement account withdrawals are taxable

• County income tax increases overall tax exposure

• Roth withdrawals may provide state tax flexibility

• Review military retirement exemptions if applicable

Careful withdrawal planning can help manage both state and county taxes.

💻 Electronic Filing Recommendation

E-filing your Indiana return is recommended:

• Automatic county tax calculations

• Built-in Social Security exemption

• Proper integration with federal retirement income

• Reduced math errors

• Faster processing

Tax software can calculate both state and county taxes once your address and income are entered.

Final Thoughts

Indiana taxes most pensions, IRA withdrawals, and 401(k) distributions at the state and county level.

Social Security benefits are exempt, and certain military retirement income may qualify for special treatment.

Because county income tax applies in addition to state tax, total retirement tax exposure can vary by location.