Updated October 4, 2026. Quick answer: No. Illinois does not tax 401(k) or IRA distributions: the IL-1040 instructions subtract the federally taxed amount of distributions from “qualified employee benefit plans (including railroad retirement and 401(K) plans)” and from “Individual Retirement Accounts” on Line 5, with no age or dollar limit stated.
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.
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.
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?.
What Illinois does with 401(k) and IRA withdrawals
The instructions state “The Illinois income tax rate is 4.95 percent” The statute behind it is 35 ILCS 5/201, which sets the rate.
| Item | What the documents say |
|---|---|
| Treatment | Subtracted on IL-1040 Line 5, no age or dollar limit stated |
| State rate on taxable income | 4.95 percent, flat |
| Source | Illinois Department of Revenue, 2025 IL-1040 Instructions |
A $40,000 withdrawal
A $40,000 withdrawal from a traditional 401(k) or IRA is subtracted on Line 5, so the Illinois tax on it is $0. The same dollars would be taxed at the flat rate if they were not retirement distributions.
What changes in 2026
No change for 2026 appears in the documents read for this page; 35 ILCS 5/201 sets the same 4.95% rate.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.
Related: whether Illinois taxes pensions, how Illinois taxes retirement income, whether Illinois taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- 2025 Form IL-1040 Instructions (R-02/25): https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040-instr.pdf
- 35 ILCS 5/201 Tax imposed: https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=003500050K201
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.