Roth Conversion in Illinois
A Roth conversion Illinois residents make is generally free of Illinois state income tax, because Illinois subtracts federally taxed retirement income, including traditional-IRA-to-Roth conversions, from its flat 4.95% tax base.
A Roth conversion costs an Illinois resident $0 in state income tax. Illinois charges a flat 4.95% rate (Source: Illinois Dept. of Revenue, 2026 Booklet IL-700-T), but it subtracts federally taxed retirement income, including amounts rolled from a traditional IRA to a Roth IRA, on IL-1040 Line 5 (Source: IL DOR Publication 120, Retirement Income, 2026). You still owe federal ordinary income tax on the converted amount.
Does a Roth conversion get taxed in Illinois?
No. Illinois does not tax a Roth conversion. Federally the converted amount is ordinary income, and because Illinois starts from your federal adjusted gross income, the conversion first flows into the Illinois base. Illinois then removes it: IL DOR guidance expressly lists “a traditional IRA that has been converted to a Roth IRA” as a subtraction (Source: IL DOR Publication 120, Retirement Income, tax.illinois.gov, 2026).
The IL-1040 instruction language reads “an Individual Retirement Account (IRA) (including amounts rolled over to a Roth IRA),” so the federally taxed portion of the conversion is subtracted on IL-1040 Line 5 and the net Illinois income tax on the conversion is effectively zero (Source: IL DOR Publication 120, 2026). Only the amount included in your federal AGI is subtractable, which for a normal fully taxable conversion is the entire conversion. For the federal mechanics, see our overview of Roth conversion planning and how state rules interact in our Roth conversion state taxes guide.
Does Illinois tax 401(k), IRA, and pension withdrawals?
No. Illinois does not tax distributions from qualified retirement plans, IRAs, 401(k)s, SEPs, or pensions. The federally taxed portion is subtracted on IL-1040 Line 5, “Social Security benefits and certain retirement plans” (Source: IL DOR Publication 120, 2026). Subtractable items include 401(k) plans, IRAs, self-employed retirement plans, government and military retirement plans, railroad retirement, and private qualified employee benefit plans.
A distinctive feature: the Illinois retirement subtraction carries no age condition, no income cap, and no dollar limit. The only rule is that you subtract the federally taxed portion, not the gross amount (Source: IL DOR Publication 120, 2026). Unlike many states that cap their retirement exclusions, Illinois leaves qualified retirement income effectively unlimited on the state side.
What Illinois taxes at 4.95% versus what it exempts
| Income type | Taxed by Illinois? | Basis |
|---|---|---|
| Traditional-to-Roth conversion | No (subtracted) | IL-1040 Line 5; Pub-120 |
| 401(k), 403(b), 457(b) withdrawals | No (subtracted) | Pub-120 qualified plans |
| Traditional IRA and SEP distributions | No (subtracted) | Pub-120 IRA/SEP plans |
| Public, private, and military pensions | No (subtracted) | Pub-120 government/private plans |
| Social Security benefits | No (subtracted) | Federally taxed portion, Line 5 |
| Wages and self-employment income | Yes, 4.95% | Flat individual income tax |
| Capital gains, dividends, interest | Yes, 4.95% | Flat individual income tax |
| Rental and business income | Yes, 4.95% | Flat individual income tax |
Source: Illinois Dept. of Revenue, Publication 120 and IL-1040 instructions, 2026.
Does Illinois tax Social Security benefits?
No. Illinois does not tax Social Security. The federally taxed portion of your benefits, reported on federal Form 1040 Line 6b, is fully subtracted on IL-1040 Line 5 (Source: IL DOR Publication 120, 2026). Even if a large conversion pushes more of your benefits into the federally taxable range, Illinois still removes that federally taxed amount, so your state bill on benefits stays at zero.
This matters during a conversion year, because the federal side moves separately from the state side. Our taxation of Social Security benefits guide walks through the federal provisional-income math that a large conversion can trigger.
The Illinois flat income tax rate of 4.95% and why it favors conversions
Illinois applies a single flat 4.95% individual income tax to all income levels, with no graduated brackets, plus a 2026 personal exemption allowance of $2,925 (Source: Illinois Dept. of Revenue, 2026 Booklet IL-700-T; Illinois Comptroller 2026 income-tax-exemption bulletin, up from $2,850). Because pre-tax dollars went in and come out free of Illinois tax through the Line 5 subtraction, the conversion is not taxed by Illinois at either end.
For a resident converting qualified retirement dollars, Illinois would not tax those dollars on the way out under Line 5 in any case, so the state adds no income tax to the conversion. The only income tax on converting is the federal one.
State tax on a $100,000 Roth conversion in Illinois (illustrative)
This illustrative example shows how a $100,000 conversion moves through an Illinois return. It is a simplified figure for education, not a projection of your result. Illinois adds the conversion to the federal AGI it starts from, then subtracts the federally taxed retirement amount on Line 5, leaving $0 of Illinois income tax on the conversion itself.
| Step on the Illinois return | Amount |
|---|---|
| Traditional IRA converted to Roth (federal ordinary income) | $100,000 |
| Amount flowing into the Illinois base from federal AGI | $100,000 |
| Illinois tax at 4.95% if there were no subtraction | $4,950 |
| Retirement subtraction, IL-1040 Line 5 | minus $100,000 |
| Illinois income tax due on the conversion | $0 |
| Federal ordinary income tax on the conversion | Still owed (up to 37%) |
Source: Illinois Dept. of Revenue, IL-1040 instructions and Publication 120, 2026; federal rate per IRS 2026 brackets. The $4,950 line shows only what Illinois would have charged absent its subtraction, to make the exemption visible. To size the federal cost and payoff, see our how much to convert to Roth and Roth conversion break-even resources. Whether a conversion is worthwhile depends on individual facts. It can be favorable when your current federal rate is at or below your expected future rate, or where it reduces future required minimum distributions (RMDs begin at age 73, or 75 if you were born in 1960 or later) or helps keep a surviving spouse or heirs out of higher brackets; it can be unfavorable if future rates turn out lower, if the funds are needed sooner, or if the current-year tax or IRMAA cost outweighs the benefit. This is general education, not a recommendation.
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Illinois estate tax exemption 2026 and why it changes the math
Illinois imposes a state estate tax with a $4,000,000 exclusion and a graduated schedule topping out at 16%, administered by the Illinois Attorney General on Form 700 (Source: Illinois Attorney General estate-tax fact sheet; Tax Foundation, 2026). There is no separate inheritance tax. The exclusion is not indexed for inflation and is not portable between spouses, and it operates as a cliff: cross $4,000,000 and the estate is taxed.
That low, non-portable threshold sits far below the federal estate and gift tax exemption of $15,000,000 per person in 2026 (Source: One Big Beautiful Bill Act of 2025; IRS 2026 inflation adjustments). For some Illinois residents whose estates are near or above the $4,000,000 exclusion, paying the conversion income tax with funds held outside the retirement account can reduce the taxable estate by the amount of tax paid. This also reduces current assets and liquidity, and provides no estate benefit for estates comfortably under the exclusion. Whether it helps depends on your situation. Legislation to raise the exclusion to $8,000,000 (HB2601) and to restructure the brackets (HB2368) was proposed but was not enacted as of mid-2026, so the $4,000,000 figure reflects current law and could change if a bill is signed later. See our estate tax exemption 2026 overview for the federal and state interaction.
Residency and timing: the Roth conversion Illinois window
A Roth conversion is taxed by your state of legal residence in the conversion year. Illinois taxes residents on all income and then subtracts the conversion out, so an Illinois resident pays $0 in state tax on it (Source: IL-1040 instructions, Step 3, 2026). Federal law 4 U.S.C. 114 bars any state from taxing a nonresident’s retirement income, so once you move, your former state cannot reach the conversion either.
One timing point to note: the Illinois subtraction applies only while you are an Illinois resident. If you plan to relocate to a state that does tax retirement income or conversions, the Illinois subtraction is available only in a year you are still an Illinois resident. Illinois lawmakers have at times discussed taxing retirement income, which has not passed, but a resident weighing a large conversion may factor the current subtraction into the timing decision. For the broader relocation question, see moving to a tax-friendly state in retirement. Remember the federal side of a conversion still raises your modified AGI, which can lift Medicare premiums two years later, as our Medicare IRMAA 2026 brackets guide explains.
Other Illinois taxes retirees still face
The retirement income exemption does not make Illinois a no-tax state. Illinois has among the nation’s highest effective property tax rates, roughly 1.9% to 2.2% of home value, and a combined state and local sales tax in the city of Chicago that rises to 10.50% on August 1, 2026, up from 10.25%, among the highest of any major U.S. city, with some Cook County suburbs running higher still (Source: Illinois Dept. of Revenue NITA occupation and use tax bulletin FY 2026-34, effective August 1, 2026, tax.illinois.gov; Tax Foundation, 2026). Those costs sit outside the income tax and are worth weighing alongside the conversion decision.
Illinois Schedule M, Line 5, and the backdoor Roth software glitch
Illinois reports the retirement subtraction through IL-1040 Line 5, supported by the Schedule M framework for subtractions. A backdoor Roth conversion, where you convert nondeductible traditional-IRA basis, is not federally taxable on the basis portion, so there is nothing there for Illinois to tax either, and the federally taxed portion (if any) is subtracted like a normal conversion (Source: IL DOR Publication 120, 2026).
One documented pain point: some tax-preparation software has wrongly added the nontaxable basis portion of a conversion into Illinois income, overstating what appears on the Illinois return. The Illinois rule is clear that only the federally taxed portion, meaning the amount included in your federal AGI, is relevant, so a correctly prepared return subtracts the taxable portion and never adds the nontaxable basis back into Illinois income (Source: IL DOR Publication 120 and IL-1040 instructions, 2026). If your software shows a conversion increasing Illinois tax, that is a flag to check the entries against the federal taxable amount.
Frequently asked questions
Does Illinois tax Roth conversions?
No. Illinois does not tax Roth conversions. The converted amount enters the Illinois base through federal AGI, then Illinois subtracts it on IL-1040 Line 5 as retirement income, with IL DOR guidance naming traditional-to-Roth conversions as subtractable (Source: IL DOR Publication 120, 2026). You still owe federal ordinary income tax on the conversion.
Does Illinois tax Roth IRA distributions in retirement?
No. Qualified Roth IRA distributions are not federally taxable, so there is nothing for Illinois to include in its base. Even the earlier conversion that funded the Roth was subtracted on IL-1040 Line 5, so both the conversion and later qualified withdrawals remain free of Illinois income tax (Source: IL DOR Publication 120, 2026). Federal qualified-distribution rules still apply.
What is the Illinois income tax rate on retirement income?
Illinois has a flat 4.95% individual income tax, but the effective rate on qualified retirement income is 0% because the federally taxed portion is subtracted on IL-1040 Line 5 (Source: Illinois Dept. of Revenue, 2026 Booklet IL-700-T and Publication 120). The 4.95% rate applies to wages, capital gains, dividends, interest, and rental income instead.
Does Illinois tax pension income?
No. Illinois subtracts income from government, military, railroad, and private qualified pension plans, along with state and local deferred compensation, on IL-1040 Line 5 (Source: IL DOR Publication 120, 2026). There is no age, income, or dollar cap on the subtraction. Only the federally taxed portion is subtracted, which for most pensions is the full taxable amount.
Is a backdoor Roth conversion taxed in Illinois?
No. The nondeductible basis in a backdoor Roth is not federally taxable, so Illinois has nothing to tax there, and any federally taxed portion is subtracted on Line 5 like a standard conversion (Source: IL DOR Publication 120, 2026). Watch for software that mistakenly adds the nontaxable basis to Illinois income; only the federally taxed portion belongs in the calculation.
Does Illinois have an estate tax that affects retirement accounts?
Yes. Illinois levies an estate tax with a $4,000,000 exclusion and rates to 16%, filed on Form 700, with no inheritance tax (Source: Illinois Attorney General; Tax Foundation, 2026). Retirement accounts count toward the taxable estate. The exclusion is not indexed or portable between spouses, so estate size, not just income tax, can shape an Illinois conversion decision.
How do I subtract retirement income on my Illinois tax return?
Report the federally taxed portion of your retirement income, including a Roth conversion, on IL-1040 Line 5, “Social Security benefits and certain retirement plans,” supported by the Schedule M subtraction framework (Source: IL DOR Publication 120 and IL-1040 instructions, 2026). Subtract the federally taxed amount, not the gross distribution. Line numbering can change by tax year, so confirm the current IL-1040 layout.
Sources
- Illinois Dept. of Revenue, Publication 120, Retirement Income, tax.illinois.gov, 2026.
- Illinois Dept. of Revenue, 2026 Booklet IL-700-T Withholding Income Tax Tables, and IL-1040 instructions (Step 3, Line 5), tax.illinois.gov, 2026.
- Illinois Attorney General, Estate Tax Instruction and Fact Sheet (Form 700), illinoisattorneygeneral.gov, 2026.
- Illinois Comptroller, State Income Tax Exemptions 2026 bulletin ($2,925 personal exemption), illinoiscomptroller.gov, 2026.
- Illinois Dept. of Revenue, Northern Illinois Transit Authority (NITA) Occupation and Use Tax Rate Change bulletin FY 2026-34 (Chicago combined rate rising to 10.50% effective August 1, 2026), tax.illinois.gov, 2026.
- Tax Foundation, 2026 Illinois Tax Rates and Rankings, taxfoundation.org, 2026.
- Federal authority: 4 U.S.C. 114 (state taxation of nonresident retirement income); IRS 2026 ordinary income brackets and RMD rules.