Indiana offers retirees a combination of low taxes, affordable housing and a relatively low cost of living that can make the state an attractive retirement destination, Gail Perry, editor-in-chief emeritus of CPA Practice Advisor and a member of the American Institute of CPAs’ PFP Champions Task Force, said in a recent interview.
The state’s flat income tax rate is falling again in 2026, Social Security benefits are exempt from state income tax, and Indiana imposes no estate or inheritance taxes. Retirees do, however, pay state income tax on pensions, IRA distributions and other deferred-compensation withdrawals.
For retirees weighing a move, the appeal extends beyond taxes. Perry pointed to manageable housing costs, property-tax relief programs and a lifestyle that ranges from suburban communities near Indianapolis to rural farming towns and lakefront communities along Lake Michigan.
What this means for you
If you’re considering relocating in retirement, Indiana may be worth a closer look if your priorities include:
- Lower state income taxes.
- No taxation of Social Security benefits.
- No estate or inheritance taxes.
- Affordable housing compared with many coastal states.
- Property-tax relief provisions for homeowners.
- Access to both urban and rural lifestyles.
Before making a move, Perry said retirees should evaluate county-level tax differences, housing costs and access to services with the help of a local financial professional.
Indiana’s income tax rate continues to fall
One of Indiana’s biggest advantages is its relatively low state income tax.
Perry said Indiana’s flat income tax rate was 3% and dropped to 2.95% in 2026, with another reduction already planned for 2027. Residents also pay county income taxes that vary by location, ranging from roughly 0.5% to 3%.
The state also offers several exemptions, including a $1,000 exemption per family member and additional exemptions for taxpayers age 65 and older. Lower-income seniors may qualify for additional exemptions and credits.
Social Security escapes taxation, but retirement withdrawals do not
Many retirees focus first on how a state treats Social Security benefits.
Indiana does not tax Social Security income. However, Perry noted that pensions, IRA withdrawals and distributions from other tax-deferred retirement accounts are taxed as ordinary income under state rules.
That distinction can matter for retirees who rely heavily on workplace pensions or substantial IRA withdrawals to fund retirement spending.
Property-tax relief can help homeowners control costs
Property taxes are another major concern for retirees on fixed incomes.
Perry said Indiana allows a deduction of up to $2,500 of property tax paid on a principal residence for homeowners and a deduction of up to $3,000 of rent paid on a principal residence for renters, subject to eligibility rules.
The state also offers protections that can help limit annual property-tax increases for seniors.
“I think property taxes in the state overall are pretty manageable,” Perry said.
She also cited Indiana’s circuit-breaker provisions, which limit how much property taxes can increase in certain situations.
Indiana keeps sales taxes simple
Indiana imposes a 7% statewide sales tax with no additional local sales taxes.
Some purchases are exempt.
Prescription medications are not taxed, and most grocery purchases are exempt from sales tax, although restaurant meals remain taxable.
For retirees watching spending, those exemptions can reduce everyday living costs.
Indiana imposes no estate or inheritance taxes
Estate planning often plays a role in retirement relocation decisions.
Indiana currently imposes neither an estate tax nor an inheritance tax, according to Perry.
For retirees focused on wealth transfer and legacy planning, that policy may simplify estate-planning considerations, compared with some neighboring states.
Tax credits reward education-related giving and saving
Indiana offers additional tax benefits that may appeal to retirees helping children or grandchildren.
Contributions to the state’s 529 college savings plan qualify for a tax credit equal to 20% of contributions, up to $1,500 annually, Perry said.
The state also provides a tax credit for donations to Indiana colleges and universities.
Those provisions may be attractive for retirees interested in education funding or charitable giving.
Affordable housing remains one of Indiana’s strongest selling points
Taxes are only one part of the retirement equation.
Perry said housing costs remain relatively affordable throughout much of Indiana, although prices tend to be higher in metropolitan areas and along portions of the Lake Michigan shoreline.
The state’s largely rural character helps keep costs lower than in many regions of the country.
Retirees can choose between urban amenities and rural living
Lifestyle matters as much as taxes for many retirees.
Perry highlighted communities such as Carmel, just north of Indianapolis, which was recently recognized by U.S. News & World Report as a top place to live. She also pointed to attractions including the Indianapolis 500 and the state’s annual Covered Bridge Festival in Parke County.
Retirees can choose between suburban communities with restaurants and shopping or quieter rural areas surrounded by farmland.
Working with a local adviser can help retirees avoid unpleasant surprises
A retirement move involves more than comparing tax rates.
Perry said prospective retirees should work with a financial professional familiar with Indiana’s county-by-county differences in taxes, housing costs and local amenities.
“I would always want to talk to somebody if I were especially moving here and didn’t know what to expect,” Perry said. “I wouldn’t want to be surprised by, say, the counties that charge you up to 3% income tax on top of the state’s rate.”