Kentucky is emerging as a compelling option for retirees, thanks to lower living costs, recent tax cuts and favorable treatment of retirement income.
What changed is straightforward, Wesley Botto, CPA/PFS, CFP, a financial planner at Hillcrest Financial Group as well as a member of the American Institute of CPA’s (AICPA) PFP Champions task force, said in an interview.
The state reduced its individual income tax rate to 3.5% in 2026, and it continues to offer exclusions on retirement income. For households weighing where to retire, those changes come at a time when inflation and housing costs remain top concerns.
Below is a transcript of that interview, edited for brevity and clarity.
Kentucky’s cost of living and housing affordability
Robert Powell: Kentucky is an appealing retirement destination. It has strong tax benefits, and the cost of living is below the national average. Joining me to discuss that, and more, is Wes Botto. He is a CPA, PFS, CFP, a financial planner at Hillcrest Financial Group in Cincinnati, Ohio, and a member of the American Institute of CPAs Personal Financial Planning Champions Task Force. Wes, welcome.
Wes Botto: Thanks for having me.
Robert Powell: Let’s start with cost of living before we turn to taxes.
Wes Botto: That sounds great. The cost of living in Kentucky is about 7% lower than the national average. It’s a very affordable place to live.
Robert Powell: And housing plays a role in that, I assume?
Wes Botto: Certainly. The estimated typical home value in Kentucky is about $228,000, which is lower than the national average.
Income taxes and retirement income rules
Robert Powell: Let’s turn to taxes. What do retirees need to know about Kentucky’s income tax rates?
Wes Botto: It’s an interesting time to talk about this. In 2025, the state reduced the individual income tax rate from 4% to 3.5%, effective in 2026.
Robert Powell: That applies to earned income, dividends, interest and capital gains?
Wes Botto: Correct.
Robert Powell: What about retirement income such as Social Security, IRA distributions and pensions?
Wes Botto: Kentucky offers an exclusion for retirement income. Currently, that exclusion is $31,110 per taxpayer. For married couples filing jointly, each spouse qualifies, so there are planning opportunities, such as coordinating withdrawals between accounts.
Wesley Botto, CPA/PFS, CFP, Hillcrest Financial Group
Sales taxes and property taxes
Robert Powell: What about other taxes, such as sales and property taxes?
Wes Botto: Kentucky has a statewide sales tax of 6%. Some items, such as prescription drugs, are exempt.
Robert Powell: And property taxes?
Wes Botto: Property taxes are relatively low. A 2026 county-by-county report shows an average rate of about 0.73%. There is variation depending on location. For example, in Northern Kentucky, where schools are strong, property taxes can be higher.
There is also a homestead exemption for those age 65 and older. For 2025 and 2026, that exemption is $49,100, which reduces the taxable value of a home.
Estate and inheritance considerations
Robert Powell: Do retirees need to worry about estate or inheritance taxes?
Wes Botto: Kentucky does have an inheritance tax, but it generally applies only when assets pass to non-immediate family members. Most clients do not encounter it because assets typically stay within the family.
Why professional advice matters
Robert Powell: There are two groups to consider. Those already living in Kentucky and planning to retire there, and those thinking about relocating. Both groups may benefit from professional guidance when evaluating taxes, cost of living and other factors.
Wes Botto: Exactly. I’ve seen clients relocate for tax or lifestyle reasons, and having professional advice can help them make informed decisions.
Lifestyle factors: Bourbon Trail and Kentucky Derby
Robert Powell: We would be remiss not to mention the Bourbon Trail. Is it worth a visit?
Wes Botto: Absolutely. As a University of Kentucky graduate, I’ve spent plenty of time there. It’s a great experience whether or not you plan to retire in the state.
Robert Powell: And the Kentucky Derby?Wes Botto: It’s a unique event that attracts people from around the world. Many locals watch it on TV, but whether you attend in person or not, it’s a major part of the culture.
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