Retiring in Kentucky

Every figure below is sourced to Kentucky’s own publications and dated. Estimates only, and not tax advice.

Retirement tax by state

What your state actually takes from a 401(k) withdrawal, a pension, and Social Security — in dollars, not a yes/no list.

Brokerage account growth

Long-term index-fund growth after expense-ratio drag — and what your state takes from the gains at withdrawal.

Roth vs. Traditional

Decided on the two rates that actually govern it — yours now, and yours at withdrawal, in the state you'll retire in rather than the one you're in.

Contribution limit optimizer

2026 limits, employer match, the 60-63 super catch-up, and whether the Roth catch-up mandate applies to you.

Required minimum distribution

When your RMDs start under SECURE 2.0, how much this year's is, and what missing it costs.

Backdoor Roth pro-rata

What a backdoor Roth conversion would actually cost you in tax — the pro-rata rule most calculators only describe.

Self-directed IRA real estate (UDFI)

The tax a leveraged rental owes inside a self-directed IRA — computed at trust rates, not the rate you'd assume.

Kentucky at a glance

401(k) and IRA withdrawals
Partly excluded
Social Security
Not taxed
Top marginal rate
3.5%
A flat rate on all taxable income.
Tax year
2026
Brackets are legislated and change on a fixed calendar, so the year matters.
  • The most consequential Kentucky retirement fact is one of scope rather than generosity: because the $31,110 covers pension AND 401(k) AND IRA income together, a calculator that applies it separately to each income stream will substantially understate Kentucky tax for any retiree with more than one source.
  • The January 1, 1998 service date is what separates a Kentucky public retiree from a private one. Two retirees with identical $60,000 pensions can face completely different Kentucky tax depending on when the service was performed and for whom - and a public retiree who left service before 1998 pays nothing at all.
  • Because $31,110 is not indexed while the standard deduction is, the real value of Kentucky's retirement exclusion erodes every year. It has been unchanged since 2018.
  • Kentucky's local occupational license fees reach earned income only, so the local overlay described in localIncomeTax generally does not apply to a retiree living on retirement income - a meaningful advantage over Indiana and Maryland, where the county tax follows the retiree.

Local income tax applies in parts of Kentucky

KENTUCKY HAS WIDESPREAD LOCAL TAXES ON EARNED INCOME AND THEY ARE EASY TO MISS BECAUSE THEY ARE NOT CALLED INCOME TAXES. Cities, counties and school districts levy OCCUPATIONAL LICENSE FEES (occupational or payroll taxes) on wages, salaries and net profits. All 87 counties that levy one levy it on payroll, at rates from 0.50% to 2.5% with a median of 1%; 170 cities levy one on gross earnings, with a median FY2023 rate of 1.47%. FOUR STRUCTURAL FEATURES THAT MATTER AS MUCH AS THE RATE. (1) THEY STACK. Louisville's 2.20% resident rate is three separate levies - Louisville Metro 1.25%, TARC transit 0.20% and school boards 0.75%; the non-resident rate of 1.45% drops the school board component. Boone County likewise stacks a 0.80% county fee, a 0.15% mental health fee and a 0.50% school board fee for a combined maximum of 1.45%. (2) MANY ARE WORK-LOCATION TAXES, not residence taxes - the opposite of the residence rule used in Indiana and Maryland - so a commuter's liability follows the employer's address. Louisville is the clear exception, charging residents and non-residents different rates. (3) SEVERAL CAP THE WAGE BASE, so the effective rate FALLS as income rises: Boone County's 0.80% is capped at $79,494 of wages (a maximum of $635.95 per employee) and its 0.15% mental health fee at $16,666 (a maximum of $25.00), while its 0.50% school board fee has no cap and applies only where the employee both works in AND resides in the Boone County School District. A flat percentage applied to a high salary will overstate liability in every capped jurisdiction. (4) THEY REACH EARNED INCOME ONLY - wages, salaries and net profits - so they generally do NOT apply to a retiree living on pensions and distributions.