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.
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.
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. |
Coordinate this with your overall retirement plan
An adviser can help weigh how much of a pension or IRA withdrawal to take this year, whether a Roth conversion makes sense before or after a move, and how state tax interacts with the rest of your plan, but that does not replace the numbers in your own return.
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Social 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.
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.