Updated October 16, 2026. Quick answer: Illinois lets a resident subtract federally taxed retirement income from qualified plans, IRAs and government plans, including a state or local governmental deferred compensation plan under IRC Section 457; the documents read do not name 403(b) plans.
More state retirement-income schedules, line by line: Illinois IL-1040 line 5.
Illinois at a glance
| Item | What the documents say |
|---|---|
| How the state treats 403(b) and 457(b) withdrawals | Governmental deferred compensation plan under IRC Section 457: yes; 403(b): not named |
| Do the state’s documents name these plans? | The documents read name 457 plans but not 403(b) plans |
| Retirement exclusion or credit | Line 5 subtraction of federally taxed retirement income, with no dollar cap or age stated |
| Public-employee pension rule | Yes, government plans and governmental 457 plans are listed |
| Rate in the documents read | 4.95% |
| Changed for 2026? | The 2025 instructions read describe no 2026 change |
What the Illinois documents say
Schedule M and the Form IL-1040 instructions allow the subtraction on Line 5 for income that is federally taxed. Publication 120 lists “state or local governmental deferred compensation plan paid under IRC Section 457” among the sources, and says a qualified plan is one “defined in Internal Revenue Code (IRC) Sections 402 through 408”. It also bars income from deferred compensation plans that are not government plans.
The Illinois income tax rate printed in the instructions is “The Illinois income tax rate is 4.95 percent (.0495)”
Withholding and federal tax
Whether a state withholds is a separate rule: see state withholding on retirement withdrawals. Federal rules: 403(b) withdrawal rules and 457(b) withdrawal rules. The IRS says that if you receive pension or annuity payments from a qualified employer retirement plan, “all or some portion of the amounts you receive may be taxable unless the payment is a qualified distribution from a designated Roth account”.
What the documents do not say
- The documents read never say 403(b); they define a qualified plan by reference to IRC Sections 402 through 408 and do not say a 403(b) is covered, so this page does not claim it.
- No Illinois statute source was retrievable, so no statute section is cited.
Common mistakes
- Assuming Illinois’s rule for a 401(k) or IRA also covers a 403(b) or 457(b): read whether its documents name the plan.
Related: whether Illinois taxes 401(k) and IRA withdrawals, Illinois retirement taxes, whether Illinois taxes pensions, 403(b) withdrawal rules, 457(b) withdrawal rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 Form IL-1040 Instructions: https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040-instr.pdf
- Publication 120, Retirement Income (PUB-120 R-12/25): https://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-120.pdf
- IRS Tax Topic 410, Pensions and annuities: https://www.irs.gov/taxtopics/tc410
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.