Updated October 16, 2026. Quick answer: Illinois lets a resident subtract federally taxed IRA distributions: Publication 120 says “You may subtract the amount of any federally taxed portion” of IRA distributions you received, with no dollar cap or age condition stated, and the documents read do not mention inheriting an IRA directly.
Illinois at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Federally taxed IRA distributions can be subtracted; no dollar cap or age condition stated |
| Do the state’s documents address beneficiaries? | Narrowly: a beneficiary share of payments from certain retirement plans reported on Schedule K-1-T should not be included on Line 5 |
| Retirement exclusion or credit | Retirement income subtraction on Form IL-1040, Line 5, worded around amounts “that you received” from the plan |
| Rate in the documents read | 4.95% (.0495) |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The documents read are the 2025 instructions and the December 2025 Publication 120, and they do not address any 2026 change to this subtraction |
What the Illinois documents say
Publication 120 lists an Individual Retirement Account (IRA) among the sources of retirement income a resident may subtract, and the subtraction is for the federally taxed portion only.
The 2025 IL-1040 instructions add a note on Line 5: a beneficiary share of payments from certain retirement plans reported on Schedule K-1-T (trust income) is not included. The same instructions print the rate: “The Illinois income tax rate is 4.95 percent (.0495)”.
The federal 10-year rule and your Illinois tax year
IRS Publication 590-B says a beneficiary may be required to take the entire account balance by the “end of the 10th year following the year of the owner’s death”, with exceptions for certain beneficiaries. Because the balance generally has to come out within that window, the timing of each withdrawal decides which tax year it lands in. See the 10-year rule and annual RMDs, lump sum versus spreading withdrawals and inherited IRA rules.
Withholding and other state taxes
Whether a state withholds from a withdrawal is a separate rule: see state withholding on retirement withdrawals. For Illinois’s own death taxes, see Illinois inheritance tax.
What the documents do not say
- The documents read do not mention a person inheriting an IRA directly.
- The Illinois statute (35 ILCS 5/201) could not be read this session over a TLS failure, so no section is cited.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
Common mistakes
- Assuming Illinois’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with a Illinois preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Illinois taxes 401(k) and IRA withdrawals, Illinois retirement taxes, Illinois inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- 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
- 2025 Form IL-1040 Instructions: https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040-instr.pdf
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/pub/irs-pdf/p590b.pdf
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.