# Retirement Taxes in Indiana (2026)

> Does Indiana tax Social Security, pensions or 401(k) withdrawals? The 2026 rules, rates, and what the state tax actually costs a retiree.

Source: https://savingslast.com/retirement-taxes-in-indiana/
Markdown: https://savingslast.com/retirement-taxes-in-indiana.md
Site: SavingsLast, free retirement drawdown calculators. Educational estimates, not advice.

**Less tax-friendly.** Income tax: flat 2.95% for 2026, plus a county income tax. Social Security: not taxed. Retirement account withdrawals: taxable.

*Interactive calculator on the page: https://savingslast.com/retirement-taxes-in-indiana/. The same engine is the MCP tool how_long_will_money_last at https://savingslast.com/mcp.*

Seeded with roughly 15% — about 10% effective federal plus 4.7%, the Indiana tax on $40,000 of IRA withdrawals at 65 under 2026 rules. Change it to your own rate.

## What Indiana taxes in retirement

| State income tax | Flat 2.95% for 2026, plus a county income tax |
| --- | --- |
| Social Security | Not taxed |
| 401(k) and IRA withdrawals | Taxable |
| Pensions | Taxable |
| Military retirement pay | Fully exempt from 2022, any age, no cap — and untaxed by the county income tax too |
| Estate or inheritance tax | None |
| Average combined sales tax | 7% |
| Average effective property tax | 0.76% of home value |

The state rate is one of the lowest in the country, but every Indiana county adds its own income tax on the same income. Marion County (Indianapolis) adds 2.02%; check your own county before assuming the state rate is what you pay.

## What the state tax actually costs you

Take a $500,000 balance and withdraw $2,500 a month, rising with inflation. At an effective federal rate of 10% alone, the money lasts about **18.8 years**. Add Indiana's 4.7% and it lasts about **17.4 years** — a difference of roughly **1.4 years**.

That is the honest scale of it. State income tax is real money, but for most retirees it changes the answer by months or a couple of years, not decades — and it is usually smaller than the effect of housing costs, which is why a move made purely for income tax often fails to pay for itself.

## The taxes that are not income tax

Retirees feel sales and property tax more than working-age households do, because a larger share of a fixed income goes on spending and on staying in a house that is already owned. Indiana charges an average combined sales tax of about **7%** and levies an average effective property tax of about **0.76%** of a home's value, which is close to the national average.

There is no state estate or inheritance tax, so only the federal estate tax applies and its exemption is high enough that almost no estate owes it.

## How long $500,000 lasts here

Take a single 67-year-old with $500,000 in an IRA, the average Social Security check and $4,000 a month of spending. In Indiana that money runs out at 91 and 11 months, 25 months sooner than in a state with no income tax. Counting Indiana's prices as well, it runs out at 98 and 9 months. [How long $500,000 lasts in every state](https://savingslast.com/how-long-500k-lasts-in-every-state/) compares all 51.

## Should you move for the tax?

Compare the whole burden rather than one line of it. States without an income tax raise the money elsewhere — Texas and New Hampshire through property tax, Tennessee and Washington through sales tax — so the saving is often smaller than the headline suggests. Run your own numbers in the calculator above, then look at what the same house costs in each state, what insurance costs, and how far you would be from family and from the specialists you already use.

Establishing residency is also a formal exercise, not a preference: high-tax states audit departing retirees on days present, driver's licence, voter registration, where the primary home is, and where a doctor and a dentist are. Half-measures lose.

## Frequently asked questions

**Does Indiana tax Social Security benefits?**

Not taxed. Your benefit may still be taxable federally once provisional income crosses the limits — see [is Social Security taxable](https://savingslast.com/is-social-security-taxable/).

**Does Indiana tax 401(k) and IRA withdrawals?**

Taxable. Pensions are treated separately — Taxable.

**Does Indiana tax military retirement?**

Fully exempt from 2022, any age, no cap — and untaxed by the county income tax too. See [which states do not tax military retirement](https://savingslast.com/which-states-dont-tax-military-retirement/).

**Is Indiana a good state to retire in for taxes?**

Less tax-friendly on income tax. A 65-year-old single filer pays about 4.7% in state income tax on $40,000 a year of IRA withdrawals under the 2026 rules. Average combined sales tax is about 7% and effective property tax about 0.76% of home value. Estate or inheritance tax: none.

**Does Indiana have an estate or inheritance tax?**

No. Indiana levies neither an estate tax nor an inheritance tax, so only the federal estate tax applies, and its exemption is high enough that very few estates owe anything.

## Similar states for retirees

- [Oregon](https://savingslast.com/retirement-taxes-in-oregon/)

## Compare and calculate

- [All 51 states compared](https://savingslast.com/retirement-taxes-by-state/)
- [States that tax Social Security](https://savingslast.com/social-security-taxes-by-state/)
- [Is Social Security taxable?](https://savingslast.com/is-social-security-taxable/)
- [Retirement withdrawal calculator](https://savingslast.com/retirement-withdrawal-calculator/)
- [How long $500k lasts](https://savingslast.com/how-long-will-500k-last-in-retirement/)
- [How much do I need to retire?](https://savingslast.com/how-much-do-i-need-to-retire-with-social-security/)

SavingsLast calculators are educational estimates. They assume a constant average return and steady inflation; real markets are volatile and sequence-of-returns risk can shorten how long money lasts. Nothing here is financial, investment, tax, or legal advice. Consult a qualified professional before making decisions.

Reviewed for the 2026 tax year. Several states are part-way through scheduled rate cuts or phase-outs, and thresholds are often indexed annually — confirm current figures with the Indiana tax agency (listed at [taxadmin.org](https://taxadmin.org/state-tax-agencies/)) or a tax professional before acting. The effective rate is a planning figure, not a filing figure.