On the ordinary retirement profile — $34,000 of Social Security and $61,000 of plan distributions — Illinois takes $0 a year in state income tax.
That is the number people compare, and it is the smallest of three. Property tax adds about $6,331 on the state's $315,000 median home, and insurance another $2,060. The three together come to $8,391, placing Illinois 31st of 50.
A note before you start. This is general education, not tax advice. Every Illinois figure comes from this site's own fifty-state income-tax dataset and its retirement tax engine, computed for a single filer aged 70 unless stated otherwise; property tax, median home price and insurance figures come from the site's core state dataset. Rates are for tax year 2026. Property tax is assessed locally in most states, so the effective rate here is a statewide figure rather than your county's.
1. What Illinois takes from retirement income
| Income stream | Illinois tax |
|---|---|
| Social Security | $0 on $40,000 |
| 401(k), 403(b), 457(b), traditional IRA | $0 on the typical profile |
| Private employer pension | $0 on $50,000 |
| Public and federal government pension | $0 on $50,000 |
| Military retired pay | $0 on $50,000 |
On Social Security. Illinois subtracts the federally taxed portion of Social Security benefits in full, with no income threshold, no phase-out, and no age condition.
On 401(k) and IRA distributions. Fully exempt, and the scope is broader than the headline suggests. The Illinois Department of Revenue's own list of subtractable retirement income covers: qualified employee benefit plans including 401(k) plans; an Individual Retirement Account (IRA) or self-employed retirement plan; a traditional IRA that has been converted to a Roth IRA; the redemption of U.S. retirement bonds; state and local government deferred compensation plans; a government retirement or government disability plan, including military plans; railroad retirement income; retirement payments to retired partners; and a lump sum distribution of appreciated employer securities. The condition that matters: Illinois exempts only the federally taxed portion, not the gross amount. The subtraction equals the amount actually included in federal AGI and carried to Form IL-1040 Line 1, so a distribution never taxable federally produces no additional Illinois benefit. A qualified employee benefit plan is defined by reference to Internal Revenue Code sections 402 through 408, and that is the boundary: a NON-qualified deferred compensation arrangement, or a commercial annuity that is not a distribution from a qualified plan, falls outside it and IS taxable in Illinois.
2. The rule that decides your Illinois bill
All three are exempt, and unusually there is no asymmetry to preserve: Illinois does not treat a private pension differently from a government or military one. Government retirement and government disability plans, including military plans, are named explicitly in the Department's subtraction list, and private pensions qualify through the same qualified-employee-benefit-plan subtraction that covers 401(k) distributions. As with every Illinois retirement subtraction, only the federally taxed portion is subtracted.
Illinois taxes wages, self-employment income, interest, dividends, and capital gains at 4.95% but taxes almost no retirement income, which makes the gap between an Illinois working-year effective rate and an Illinois retirement-year effective rate larger than in any neighboring state.
The subtraction is claimed on Form IL-1040 Line 5 and requires attaching pages 1 and 2 of the federal 1040 or 1040-SR; if federal lines 4b, 5b, and 6b do not clearly identify the retirement income, Form 1099-R must be attached as well.
3. What Illinois charges at three income levels
The same state, three retirements. All figures are for a single filer aged 70.
| Profile | Income | Illinois tax | Effective rate |
|---|---|---|---|
| Modest | $24,000 Social Security + $31,000 distributions | $0 | 0% |
| Typical | $34,000 Social Security + $61,000 distributions | $0 | 0% |
| Affluent | $40,000 + $100,000 + $40,000 other | $1,835 | 1% |
Read down the middle column. The exemption that makes a modest retirement free here is worth nothing to an affluent one — the bill goes from $0 to $1,835 as income rises. That is a phase-out, and it is the single most misreported feature of state retirement taxation.
A married couple with $48,000 of Social Security and $62,000 of distributions pays $0.
Run your own income against Illinois and every other state4. Property tax, and why it lands harder in retirement
An effective rate of 2% on the state's $315,000 median home is about $6,331 a year.
For a retiree this is a harder cost than income tax, and the reason is structural: property tax is levied on the house, while retirement income falls. A bill sized to a working income arrives every year after the income has gone.
It is also assessed locally almost everywhere, so a statewide effective rate conceals real variation between counties. Treat the figure above as the state's shape rather than as your bill.
Illinois does have a homestead provision, and it is the one lever on this line worth understanding.
Illinois's General Homestead Exemption (ghe, 35 ilcs 200/15-175) reduces a primary residence's equalized assessed value (EAV) by up to $10,000 in Cook County, $8,000 in counties contiguous to Cook (DuPage, Kane, Lake, McHenry, Will), and $6,000 in all other counties. It is not automatic in every county — homeowners typically must apply once with their county assessor/supervisor of assessments (Cook County re-verifies periodically); Cook County has since moved to an auto-renewal system for many existing recipients. Illinois also offers several other exemptions not modeled here that can stack with GHE for eligible households: the Senior Citizens Homestead Exemption, the Senior Citizens Assessment Freeze, the Home Improvement Exemption, and the Homestead Exemption for Persons with Disabilities.
Two things about homestead rules catch people out after a move. They almost always require the property to be your primary residence, which a snowbird splitting the year has to be able to demonstrate. And several states require an application to the county rather than granting it automatically — a benefit you qualify for and never claimed is worth nothing.
5. Insurance, the line nobody prices
Average home insurance in Illinois: $2,060 a year — 15th cheapest of the fifty states.
This is the line almost no retirement comparison includes, and across the country it varies more than income tax does: from Hawaii's $900 to Florida's $8,375, a ninefold spread.
For a retiree it behaves like a second property tax. It rises independently of income, a fixed-income household absorbs the whole increase, and it is a condition of the mortgage if you still have one.
6. What retiring in Illinois actually costs
Income tax on the typical retirement profile, plus property tax and insurance on each state's own median home. Illinois is shown against its own neighbours in the ranking, and against the extremes.
| State | Income tax | Property tax | Insurance | Total |
|---|---|---|---|---|
| Wyoming | $0 | $2,083 | $1,900 | $3,983 |
| Nevada | $0 | $2,489 | $2,025 | $4,514 |
| Wisconsin | $936 | $4,594 | $2,465 | $7,995 |
| Arkansas | $1,629 | $1,534 | $4,955 | $8,118 |
| Virginia | $2,693 | $3,355 | $2,265 | $8,313 |
| Illinois | $0 | $6,331 | $2,060 | $8,391 |
| Louisiana | $1,084 | $1,432 | $5,937 | $8,453 |
| Colorado | $2,416 | $2,871 | $3,312 | $8,599 |
| Utah | $4,228 | $2,672 | $1,810 | $8,710 |
| Minnesota | $4,937 | $3,750 | $3,615 | $12,302 |
| Connecticut | $4,475 | $8,779 | $2,690 | $15,944 |
Illinois comes to $8,391, 31st of 50.
Income tax is 0% of that total, which is the whole point: the number everybody checks contributes nothing to the number that matters.
One large caveat, and it matters. Each row uses that state's own median home, and those differ a great deal. So this compares the typical house in each state, not the same house in each state — buying below a state's median improves its figure materially.
7. The exemption shrinks as your income rises
Illinois's exemption is not a flat one. It shrinks as income rises, from $0 on a modest retirement income to $1,835 on an affluent one. Fully exempt, and the scope is broader than the headline suggests. The Illinois Department of Revenue's own list of subtractable retirement income covers: qualified employee benefit plans including 401(k) plans; an Individual Retirement Account (IRA) or self-employed retirement plan; a traditional IRA that has been converted to a Roth IRA; the redemption of U.S. retirement bonds; state and local government deferred compensation plans; a government retirement or government disability plan, including military plans; railroad retirement income; retirement payments to retired partners; and a lump sum distribution of appreciated employer securities. The condition that matters: Illinois exempts only the federally taxed portion, not the gross amount. The subtraction equals the amount actually included in federal AGI and carried to Form IL-1040 Line 1, so a distribution never taxable federally produces no additional Illinois benefit. A qualified employee benefit plan is defined by reference to Internal Revenue Code sections 402 through 408, and that is the boundary: a NON-qualified deferred compensation arrangement, or a commercial annuity that is not a distribution from a qualified plan, falls outside it and IS taxable in Illinois. A phase-out is a marginal rate in disguise. Inside the phase-out band an extra dollar of income costs the ordinary rate plus the exemption it withdraws — so the real cost of a larger withdrawal is higher than the headline schedule suggests.
8. What a Roth conversion costs in Illinois
A conversion of $100,000 costs $0 in Illinois state tax, even though Illinois has an income tax.
That is because the state exempts retirement plan distributions outright, and a Roth conversion is a distribution. There is no ceiling at which the exemption stops in the range tested here.
The federal tax is unchanged and still due, along with the IRMAA consequence two years later. The state's share is what disappears.
9. What part-time work costs here
Here is the asymmetry that defines Illinois for a retiree: $100,000 of plan distributions costs $0, and $20,000 of part-time work costs $845.
The state exempts retirement income and taxes wages. So the marginal cost of another dollar of 401(k) money is nothing, and the marginal cost of another dollar earned is 4.2%.
That inverts the usual advice. The conventional counsel is to work a little longer and preserve the balance. In this state the arithmetic points the other way — drawing on the pre-tax balance is the cheaper source of the next dollar, by a wide margin.
10. The order to draw your accounts in
The order you draw accounts in is worth real money, and the right order depends on the state.
Draw the pre-tax balance first, which is the opposite of the usual advice. In Illinois the state cost of a plan distribution is zero and the state cost of earned income is 4.2%, so the pre-tax account is the cheapest dollar available.
Roth money is worth less here than elsewhere, because the thing a Roth protects against — state tax on the withdrawal — does not exist in this state. It still protects against federal tax, and against a future move to a state that does tax distributions.
Required minimum distributions overrule all of this from 73 onward. Once they begin you must take the calculated amount whether the order suits you or not, which is the argument for drawing down or converting the pre-tax balance in the years before.
11. Or move across the state line
For most people the real alternative to Illinois is not Wyoming — it is the state on the other side of the line, near the same family, the same doctors and the same weather.
| State | Income tax | Property tax | Insurance | Total | Rank |
|---|---|---|---|---|---|
| Kentucky | $929 | $2,099 | $3,795 | $6,823 | 19 |
| Indiana | $1,770 | $2,128 | $2,985 | $6,883 | 21 |
| Iowa | $0 | $3,275 | $3,765 | $7,040 | 24 |
| Missouri | $1,930 | $2,632 | $2,905 | $7,467 | 25 |
| Wisconsin | $936 | $4,594 | $2,465 | $7,995 | 28 |
| Illinois | $0 | $6,331 | $2,060 | $8,391 | 31 |
Kentucky is the cheapest of the group at $6,823, $1,568 below Illinois. Whether that is worth a move is a question about your life rather than your spreadsheet — but it is the comparison worth running, because it is the one you could actually act on.
One thing this table cannot show is the county. Property tax is set locally, and the spread inside a single state is routinely wider than the gap between two neighbouring states. A border move to a cheaper state and an expensive county can leave you worse off.
12. If you are moving to Illinois from somewhere else
The eight most populous states people leave, measured against Illinois on the same three lines.
| Moving from | Their total | Illinois | Difference |
|---|---|---|---|
| California | $9,520 | $8,391 | $1,129 cheaper |
| Texas | $9,745 | $8,391 | $1,354 cheaper |
| Florida | $11,690 | $8,391 | $3,299 cheaper |
| New York | $10,287 | $8,391 | $1,896 cheaper |
| Pennsylvania | $6,465 | $8,391 | $1,926 dearer |
| Ohio | $6,380 | $8,391 | $2,011 dearer |
| Georgia | $6,033 | $8,391 | $2,358 dearer |
| North Carolina | $7,475 | $8,391 | $916 dearer |
Illinois is cheaper than 4 of these eight. Which means the answer genuinely depends on where you are starting from.
A move is not free, and this table does not price it. Transaction costs on both houses run to several per cent of the sale price, and at typical values that is often more than the first two or three years of the saving.
Illinois charges a transfer tax on the purchase itself — 0.1%, customarily paid by the seller. On the state's $315,000 median home that is about $315, once, at the point of sale. Closing costs here run about 2% to 5% of the price — $6,300 to $15,750 on the median home, which is the real entry fee for the annual saving this article has been describing.
13. What Illinois does not exempt you from
The federal system, entirely. This is the commonest misunderstanding about state retirement taxation, and it is worth stating plainly.
Required minimum distributions still apply. The amount is federal — your prior-year balance divided by an IRS life expectancy factor — and identical in all fifty states. A state changes what the distribution costs you, not whether you must take it.
Social Security is still federally taxable, on the federal provisional-income calculation, whatever your state does with it.
IRMAA still applies, with its two-year lag. A large conversion or distribution raises a Medicare premium two years later regardless of address.
And capital gains are still federally taxed. What Illinois adds on top is a separate question from what the federal system takes.
14. Establishing that you actually live here
Any state tax advantage is worth nothing until Illinois is your domicile, and the state you left may disagree about when that happened.
High-tax states audit departing residents. The question is not whether you own a home here; it is whether you genuinely abandoned the old domicile. Days spent in each state, voter registration, vehicle registration, where your doctors are and where you claim a homestead all bear on it.
The snowbird case is the risky one. Splitting the year between two states while keeping a home in both is exactly the profile a residency audit is built for. If a plan depends on the saving, count the days from the first year rather than reconstructing them afterwards.
15. Who Illinois actually suits
Someone on a modest retirement income. Illinois charges $0 at the modest profile — the exemption does its work at the bottom of the range.
It suits an affluent retiree least. At the affluent profile the bill is $1,835, and whatever exclusion helps a modest income has stopped helping by then.
And it suits someone buying below the median, because $6,331 of property tax on the median home is the largest single line in this article.
16. What to check before you decide
Get your county's actual property tax rate, not the state average. Property tax is levied locally almost everywhere, and the spread inside a state is often wider than the spread between states.
Get a real insurance quote on a real address. $2,060 is the state average; construction, roof age and exposure move it a long way.
Work out your own income tax rather than using the profile above. $95,000 split one way is not $95,000 split another, and in Illinois the mix between Social Security and distributions changes the answer.
And check what your current state actually charges you before assuming it is worse. On these three lines the ranking surprises people in both directions.
Frequently asked questions
Does Illinois tax Social Security? No. Illinois subtracts the federally taxed portion of Social Security benefits in full, with no income threshold, no phase-out, and no age condition.
Does Illinois tax 401(k) or IRA withdrawals? Fully exempt, and the scope is broader than the headline suggests. The Illinois Department of Revenue's own list of subtractable retirement income covers: qualified employee benefit plans including 401(k) plans; an Individual Retirement Account (IRA) or self-employed retirement plan; a traditional IRA that has been converted to a Roth IRA; the redemption of U.S. retirement bonds; state and local government deferred compensation plans; a government retirement or government disability plan, including military plans; railroad retirement income; retirement payments to retired partners; and a lump sum distribution of appreciated employer securities. The condition that matters: Illinois exempts only the federally taxed portion, not the gross amount.
What about pensions — private, government, or military? A $50,000 pension costs $0 if private, $0 if a government pension, and $0 if military retired pay.
What does retiring in Illinois actually cost? Income tax of $0 on the typical profile, plus about $6,331 of property tax and $2,060 of insurance on the median home — $8,391, which is 31st of 50.
Is Illinois a cheap state to retire in? On these three lines it ranks 31st of 50. Whether that makes it cheap for you depends far more on the house than on the tax code.
Does the exemption phase out? Yes. It is worth most at a modest income — $0 — and nothing by the affluent profile, where the bill is $1,835.
What does a Roth conversion cost in Illinois? An extra $0 in state tax on $50,000 converted, and $0 on $100,000. The federal tax on the conversion is unchanged and still due.
Does part-time work get taxed differently from my 401(k) withdrawals? Yes — and the gap is large. $20,000 of earnings costs $845 here while $100,000 of plan distributions costs $0, because Illinois exempts retirement income and taxes wages.
Would a neighbouring state be cheaper than Illinois? Kentucky is the cheapest of Illinois and its neighbours at $6,823 against Illinois's $8,391.
Do required minimum distributions change if I move here? No. The required amount is a federal calculation and identical in every state. What changes is what the distribution costs once taken.
Does this article include local income tax? No local income tax applies to retirement income in Illinois on the figures used here.
Will Illinois's treatment still apply in ten years? State legislatures revise retirement taxation regularly — several states have changed theirs in the past three years. Figures here are for tax year 2026 and are worth re-checking before a move.
What to do next
Two numbers decide this and neither is the one in the headline: your county's actual property tax rate, and a real insurance quote on a real address.
- Retirement state tax calculator — what any state charges on your income, cited per state
- RMD calculator — the distribution you must take, which no state changes
- Home insurance premium estimator — the line this article says decides it
- The Relocation Tax Playbook — establishing domicile, and the states that contest it