How retirement income is taxed in Illinois
Illinois exempts all retirement income from state income tax. Here's the full picture and why federal tax planning remains essential.
Retirement tax landscape
Social Security is fully exempt. All pension income (government and private) is fully exempt. All retirement account withdrawals (401(k), IRA) are fully exempt.
Understanding how Illinois treats each type of retirement income is essential for planning your withdrawals, conversions, and Social Security timing. The interaction between state and federal taxes determines your true after-tax income each year.
What's taxed and what's not
Illinois does not tax Social Security, pension income, or 401(k) and IRA distributions. All retirement income is fully exempt from state tax.
Fully exempt from state income tax.
Fully exempt from state income tax.
Fully exempt from state income tax.
Qualified distributions are fully exempt at both the state and federal level.
Tax rate
Illinois has a flat income tax rate of 4.95%. All taxable income above the standard deduction is taxed at this single rate. The standard deduction is $2,850 for single filers and $5,700 for married filing jointly.
A flat rate simplifies planning: there are no brackets to manage. Every additional dollar of retirement income is taxed at 4.95% regardless of how much you withdraw. The planning focus shifts to maximizing deductions and exemptions rather than staying within bracket thresholds.
All taxable income above the standard deduction is taxed at this rate. No brackets to manage.
$2,850 single / $5,700 married filing jointly. Income below this threshold is tax-free.
Strategies to reduce your tax burden
Illinois exempts all retirement income from state tax. There is essentially no state-level retirement tax planning to do. Focus entirely on federal tax optimization.
Roth conversions offer no state tax benefit in Illinois. Since retirement account withdrawals (401(k), IRA) are already fully exempt from Illinois state tax, converting traditional balances to Roth does not save any state tax. Roth conversions may still make sense for federal tax reasons: see the full Roth conversion playbook.
Withdrawal sequencing. The order you draw from different accounts each year matters. Drawing from taxable brokerage accounts before tapping tax-deferred accounts can keep your Illinois ordinary income lower. Read more in our drawdown sequencing playbook.
Social Security timing. Optimizing when you claim Social Security affects both your federal and state tax picture. See when to start Social Security.
Modeling your retirement taxes
The interaction between Illinois's tax rules and federal taxes is too complex to estimate by hand. A year-by-year projection shows your actual tax burden for every year of retirement.
Drawdown Arc's projection engine includes Illinois's flat rate, standard deduction, and retirement income exemptions. Set your state to Illinois and enter your account balances, pension, and Social Security timing: the projection shows your Illinois state tax alongside federal tax for every year.
State tax modeling is a Pro feature. The free calculator shows your full federal tax projection: upgrade to Pro to add Illinois (or any of the 50 states + DC) to your model.