Indiana skips Social Security and now exempts military retirement entirely, but it taxes most other retirement income at a low flat rate. The flat rate, 3.05 percent for 2024 and scheduled to keep falling, is one of the lowest in the country, so even fully taxed pension and account income lands lightly. The wrinkle is the county income taxes layered on top, which vary by where you live. The Indiana retirement income tax is best understood as a low, broad tax with two carve-outs: military pay and a modest civil-service deduction.
This guide breaks down how Social Security, military retirement, civil-service pensions, and IRA or 401(k) income are each treated, plus how county taxes fit in.
In This Guide
- Indiana Retirement Income Tax at a Glance
- Indiana Retirement Income Tax: How It Works
- Social Security
- Military Retirement
- Civil-Service Pensions, IRAs, and 401(k)s
- Putting It Together
- Frequently Asked Questions
- Next Steps
Indiana Retirement Income Tax at a Glance
Indiana keeps its base tax low and applies it broadly, then carves out two specific breaks. Social Security is fully out. Military retirement is fully out. A civil-service pension deduction trims federal nonmilitary pensions. Most other income is taxed at the flat rate plus a county rate. The table below lays out each source.
| Income type | Treatment | Limit or amount | Notes |
|---|---|---|---|
| Social Security | Fully exempt (deducted) | 100% of benefits | Railroad Retirement also deducted |
| Military retirement | Fully exempt | 100% (2022 and later) | n/a |
| Civil-service (federal) pension | Deduction (62+) | Up to $16,000 | Reduced by Social Security and Railroad Retirement |
| IRA and 401(k) income | Taxable | n/a | Flat rate plus county tax |
| Senior-specific exclusion | Limited to the deductions above | See above | County taxes still apply |
Indiana has a flat state income tax of 3.05 percent for 2024, scheduled to keep falling, and counties levy their own additional income taxes. Whatever retirement income falls outside the exemptions above is taxed under that combined rate.
Indiana Retirement Income Tax: How It Works
Indiana does not use a graduated schedule or a broad senior exemption. The Indiana Department of Revenue deducts Social Security and Railroad Retirement from Indiana income, fully exempts military retirement pay, and otherwise taxes retirement income at the flat state rate. On top of the state rate, each county sets its own income tax, so two retirees with identical income can owe slightly different totals depending on their county.
The system rewards two groups in particular: military retirees, whose pay is now 100 percent exempt, and certain federal civil-service retirees, who get a deduction. For everyone else, including most retirees living on IRA and 401(k) savings, the practical question is simply the size of the combined state-plus-county rate, which is low by national standards.
Social Security
Indiana does not tax Social Security or Railroad Retirement benefits; they are deducted from Indiana income. There is no income test, so every Indiana retiree keeps the full amount of these benefits regardless of other income.
This is the simplest piece of the Indiana retirement income tax. Because these benefits are subtracted before the flat tax applies, they never add to the income that county and state taxes are calculated on.
Military Retirement
Indiana fully exempts military retirement pay for tax year 2022 and later. This is a 100 percent exemption with no dollar cap, which puts Indiana among the more military-friendly states for retirees.
If your retirement income is largely military pay plus Social Security, Indiana may tax almost none of it. The exemption applies to the military retirement pay itself; other income, such as a civilian second-career pension or IRA withdrawals, is treated under the general rules below.
Civil-Service Pensions, IRAs, and 401(k)s
Federal nonmilitary (civil-service) pensions get a deduction of up to $16,000 for taxpayers 62 and older, but that deduction is reduced by Social Security and Railroad Retirement income. So a civil-service retiree who also draws a meaningful Social Security benefit will see the $16,000 figure shrink, sometimes to little or nothing once benefits are counted.
Private pensions, IRA withdrawals, and 401(k) distributions do not get a special break; they are taxable at the flat state rate plus the county rate. The saving grace is the size of that rate. At 3.05 percent for 2024 (and falling), the state portion is modest, though the county add-on raises the effective total. For most retirees living on account savings, Indiana taxes the income but at a low overall rate.
If you are weighing how much to draw from these accounts to cover care, retirement accounts for care walks through the tradeoffs.
Putting It Together
The practical takeaway is that Indiana is a low-tax state for retirees, with outright exemptions for Social Security and military pay and a low flat rate on everything else. The county tax is the variable most people overlook.
Picture a single retiree, age 67, with $24,000 in Social Security and $40,000 in IRA withdrawals. The Social Security is deducted entirely. The $40,000 IRA draw is taxable; at the flat 3.05 percent state rate, the state tax would be about $1,220, with the county income tax adding a further amount that depends on the county. The figures here are hypothetical and shown only to illustrate how the flat rate applies; they are not a real case, they exclude county tax and any other deductions, and they are not a prediction of your own outcome.
This is general information rather than personalized tax advice, and your county's rate, the military exemption, and how the civil-service deduction is reduced by Social Security are exactly the kind of details worth confirming with the Indiana Department of Revenue or a tax professional before you plan withdrawals. If retirement savings are part of how you will fund care, building a senior care funding plan is a useful next step.
Not sure how county taxes change your Indiana bill? Chat with Brevy's care navigator to sort out your situation.
Frequently Asked Questions
No. Indiana deducts Social Security and Railroad Retirement benefits from Indiana income, so they are fully exempt with no income limit.
No. Military retirement pay is 100 percent exempt for tax year 2022 and later, with no dollar cap.
Yes. Private pensions, IRA withdrawals, and 401(k) distributions are taxable at Indiana's flat state rate of 3.05 percent (2024) plus the county income tax. There is no broad senior exemption for this income.
Up to $16,000 for federal nonmilitary pensions at age 62 and older, but it is reduced by Social Security and Railroad Retirement income. Benefits can shrink the deduction substantially.
A flat 3.05 percent for 2024 (scheduled to keep falling), plus a county income tax that varies by where you live.
Next Steps
If you are retired in Indiana, start by separating the exempt income from the rest, then factor in your county.
- Confirm the Social Security exemption applies; it carries no income limit.
- Check the military exemption if any of your income is military retirement pay.
- Estimate the civil-service deduction carefully, since Social Security reduces the $16,000.
- Add your county income tax on top of the 3.05 percent state rate for taxable income.
If you are mapping out how to pay for care, how to pay for senior care covers the main routes.
Learn More
- How to Pay for Senior Care in Indiana
- Indiana Senior Property Tax Relief
- How Each State Taxes Retirement Income
- How to Pay for Senior Care
- Building a Senior Care Funding Plan
- Retirement Accounts for Care
Find personalized help making sense of the Indiana retirement income tax at brevy.com.
The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.