Retirement Taxes in Illinois (2025)
Very tax-friendly. Income tax: flat 4.95% — but not on retirement income. Social Security: not taxed. Retirement account withdrawals: not taxed — 401(k) and IRA withdrawals are fully exempt.
Seeded with roughly 10% — about 10% effective federal plus an estimated 0% Illinois tax on retirement withdrawals. Change it to your own rate.
What Illinois taxes in retirement
| State income tax | Flat 4.95% — but not on retirement income |
|---|---|
| Social Security | Not taxed |
| 401(k) and IRA withdrawals | Not taxed — 401(k) and IRA withdrawals are fully exempt |
| Pensions | Not taxed |
| Estate or inheritance tax | Estate tax, $4 million exemption |
| Average combined sales tax | 8.86% |
| Average effective property tax | 1.95% of home value |
Illinois exempts retirement income completely — Social Security, pensions, 401(k) and IRA withdrawals all escape the state income tax. It then takes it back through some of the highest property taxes in America and a $4 million estate tax exemption.
What the state tax actually costs you
Nothing. On a $500,000 balance withdrawn at $2,500 a month, federal tax alone brings the money down to about 18.8 years, and Illinois adds none of its own. Every dollar of state tax a retiree avoids is a dollar that stays invested and compounds, which is why the difference between states widens over a long retirement rather than staying flat.
The taxes that are not income tax
Retirees feel sales and property tax more than working-age households do, because a larger share of a fixed income goes on spending and on staying in a house that is already owned. Illinois charges an average combined sales tax of about 8.86% and levies an average effective property tax of about 1.95% of a home's value, which is above the national average.
On death: estate tax, $4 million exemption. State thresholds are frequently far below the federal exemption, so an estate that owes nothing federally can still owe here — a house plus a retirement portfolio is often enough to cross the line.
Should you move for the tax?
Compare the whole burden rather than one line of it. States without an income tax raise the money elsewhere — Texas and New Hampshire through property tax, Tennessee and Washington through sales tax — so the saving is often smaller than the headline suggests. Run your own numbers in the calculator above, then look at what the same house costs in each state, what insurance costs, and how far you would be from family and from the specialists you already use.
Establishing residency is also a formal exercise, not a preference: high-tax states audit departing retirees on days present, driver's licence, voter registration, where the primary home is, and where a doctor and a dentist are. Half-measures lose.
Frequently asked questions
Does Illinois tax Social Security benefits?
Not taxed. Your benefit may still be taxable federally once provisional income crosses the limits — see is Social Security taxable.
Does Illinois tax 401(k) and IRA withdrawals?
Not taxed — 401(k) and IRA withdrawals are fully exempt. Pensions are treated separately — Not taxed.
Is Illinois a good state to retire in for taxes?
Very tax-friendly on income tax. We estimate roughly 0% effective state tax on $40,000 a year of withdrawals for a 65-year-old single filer. Average combined sales tax is about 8.86% and effective property tax about 1.95% of home value. Estate or inheritance tax: estate tax, $4 million exemption.
Does Illinois have an estate or inheritance tax?
Estate tax, $4 million exemption. This is separate from the federal estate tax and often has a much lower threshold, so it can reach estates that owe nothing federally.
Other tax-friendly states
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SavingsLast calculators are educational estimates. They assume a constant average return and steady inflation; real markets are volatile and sequence-of-returns risk can shorten how long money lasts. Nothing here is financial, investment, tax, or legal advice. Consult a qualified professional before making decisions.
Reviewed for the 2025 tax year. Several states are part-way through scheduled rate cuts or phase-outs, and thresholds are often indexed annually — confirm current figures with the Illinois tax agency (listed at taxadmin.org) or a tax professional before acting. The effective-rate estimate is a planning figure, not a filing figure.