Updated September 5, 2026. Quick answer: Illinois is one of the most retirement friendly states in the country because it does not tax retirement income at all. Public and private pensions, federal and military pensions, and IRA, 401(k), and 403(b) distributions are all subtracted in full from the state’s flat 4.95 percent income tax.
More Illinois IL-1040 and Schedule M lines, one by one: IL-1040 line 2, IL-1040 line 3 and Schedule M line 13.
More on public pension systems, topic by topic: Illinois SERS returning to work, Illinois SERS QILDRO and Illinois SERS early retirement and increases.
More state retirement-income schedules, line by line: Illinois IL-1040 line 5.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Illinois tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Illinois tax 403(b) and 457(b) withdrawals.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Illinois tax withholding on pension payments.
Married, or planning for a spouse’s death? Whether the state is a community property state, from its own statutes: Is Illinois a community property state?.
Withdrawing from an IRA or 401(k)? Whether the state withholds tax from it, from its own documents: Illinois tax withholding on IRA and 401(k) withdrawals.
A pension earned in another state, or paid after a move, is covered here: does Illinois tax out-of-state pensions.
The Chicago police, firefighter and laborers’ pension funds, with refund and survivor rules from each fund’s own documents: Chicago police PABF retirement decisions, Chicago firefighters FABF retirement decisions and Chicago Laborers’ Fund retirement decisions.
The Chicago Teachers’ Pension Fund refund, survivor and service credit rules, from its own documents: Chicago teachers CTPF retirement decisions.
The Chicago MEABF annuity and refund rules, from the fund’s own handbook: Chicago MEABF retirement decisions.
Trusts have their own page: does Illinois tax trust income.
Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Illinois have an inheritance tax?.
Dividends and interest have their own page: does Illinois tax dividends and interest.
Annuity payments have their own page: does Illinois tax annuity income.
Military retired pay has its own page: does Illinois tax military retirement.
Saving for a child’s college? The state’s 529 break has its own page: Illinois 529 plan tax deduction.
Selling stocks, funds or real estate has its own page: does Illinois tax capital gains.
Withdrawals from a 401(k) or IRA have their own page: does Illinois tax 401(k) and IRA withdrawals.
The SERS reversionary annuity, level income option and buyout, from the system’s own documents: Illinois SERS retirement decisions.
The state’s income tax schedule: the Illinois income tax rate for 2026.
The SURS plan choice and refund rules, from the system’s own pages: SURS retirement decisions.
The IMRF pension options, refund and survivor rules: IMRF retirement decisions.
Confidence note: high. This page is scoped to pension, IRA and 401(k) taxation specifically. For the state’s full retirement-tax picture (Social Security, tax rates, estate and probate), see how Illinois taxes retirement income generally.
The rule in the source’s own words. Illinois Department of Revenue, Publication 120: “You may subtract the amount of any federally taxed portion (not the gross amount) included in your Form IL-1040, Line 1” (source, read October 5, 2026). This page’s governing citation: 35 ILCS 5/203(a)(2)(F).
A worked example. Take $40,000 of pension income that is federally taxed. Illinois subtracts the whole federally taxed amount, so none of it is added to Illinois net income. The same $40,000 earned as wages would be taxed at the flat 4.95 percent individual rate, which is $1,980 before exemptions (Illinois Department of Revenue, income tax rates).
How pensions and retirement-account withdrawals are taxed
| Public (state/local government) pensions | State and local government pensions are fully subtracted from Illinois taxable income under the retirement income subtraction described in Illinois Department of Revenue Publication 120, so no Illinois income tax applies to the federally taxed portion received. |
|---|---|
| Private (employer) pensions | Illinois allows a full subtraction for the federally taxed portion of income from qualified employee benefit plans, including 401(k) plans, so private employer pensions are not taxed by Illinois. |
| Federal government pensions (FERS/CSRS) | Federal government pensions, including FERS and CSRS annuities, are treated as government retirement or disability plan income and are fully subtracted from Illinois taxable income, so they are not taxed. |
| Military retirement pay | Military retirement pay is explicitly listed among the government retirement and disability plans that qualify for the full Illinois subtraction, so it is not taxed. |
| IRA and 401(k)/403(b) distributions | Illinois allows a full subtraction for the federally taxed portion of IRA distributions, including amounts converted to a Roth IRA, SEP plans, and 401(k) or 403(b) distributions, so these are not taxed by Illinois regardless of the taxpayer’s age. |
| General retirement-income exclusion | There is no separate age based or dollar capped exclusion because Illinois already subtracts qualifying retirement income in full, with no dollar cap and no age requirement, as long as the income was included in federal adjusted gross income. |
Compare your next step
Not ready to talk to anyone? Browse our guides.Optional next step
Want help with your retirement plan?
Request an adviser match to discuss how this fits your retirement withdrawals.
- No fee to request a match
- No obligation to hire
Expect questions about your situation, your name, email and phone, and phone verification by text. A match is not guaranteed.
The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide is paid when you submit the form, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
Opens here. Nothing loads and nothing reaches Kapitalwise until you press the button.
How our partner relationships workCompare an adviser match before you decide
Ask about the full fee, what it covers and how the adviser is paid. A match is an introduction, not a recommendation from Clear Money Guide.
- Free matching service
- No obligation to hire
The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you. WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Advisers pay for the introduction. Clear Money Guide is paid when you complete the form, whether or not you ever hire anyone. There is no obligation to hire anyone.
Continue to WiserAdvisorOpens on WiserAdvisor’s site in a new tab.
Source: WiserAdvisor’s service descriptionSocial Security
Social Security benefits are also fully subtracted from Illinois taxable income, but a companion page on this site covers Social Security taxation in detail. Social Security has its own rules in every state; see the full breakdown in how Illinois taxes retirement income generally.
Figures verified against Illinois Department of Revenue Publication 120 and its retirement income Q&A, and the Illinois Compiled Statutes (35 ILCS 5/201 and 5/203), on September 30, 2026.
Statute and sources
Governing citation: 35 ILCS 5/203(a)(2)(F); Illinois Department of Revenue Publication 120, Retirement Income.
- Illinois Department of Revenue, Publication 120, Retirement Income
- Illinois Department of Revenue, Q&A: Does Illinois tax my pension, social security, or retirement income
- Illinois General Assembly, 35 ILCS 5/203 full statute text
Read September 5, 2026.
Related: how Illinois taxes retirement income generally · does Illinois tax Roth conversions? · Roth conversion taxes, all 51 jurisdictions.
General information drawn from each state’s own published statutes and revenue-department guidance, not legal, tax or financial advice. Figures and exemption amounts are current as of the date in the quick answer, are set by state law, and can change by future legislation; any pending bill named on this page is not yet law. This page cannot see your own return, which governs. We are not a law firm, a tax adviser, or a fiduciary, and this is not personalized advice.