Partly taxed
How Kentucky taxes retirement income
Kentucky does not tax Social Security, and each person can exclude up to $31,110 a year of pension and retirement income. The exclusion covers public and private pensions, 401(k), 403(b) and 457(b) withdrawals and IRA distributions combined.
Kentucky public retirees get an extra benefit. The part of a Kentucky Public Pensions Authority or Teachers’ Retirement System pension earned for service through December 31, 1997 is fully exempt, and only the part earned from 1998 on counts against the $31,110. Federal and military retirees with service before 1998 can use the same rule through Schedule P.
Here is an example from the state pension authority. A retiree with 27 years of service, 17 of them after 1997, receives a $30,000 pension and $15,000 from deferred compensation. About 63% of the pension, or $18,888, is in the taxable pool, plus the $15,000, for $33,888. After the $31,110 exclusion, only $2,778 is taxable. Kentucky’s flat rate is 3.5% for 2026.
Questions
Does Kentucky tax KTRS and KPPA pensions?
Only the part earned after 1997, and only above the $31,110 exclusion per person.
Does the $31,110 apply to IRA withdrawals?
Yes. It covers all pension and retirement income combined.
Does Kentucky tax Social Security?
No.