Illinois: state tax on early 401(k) and IRA withdrawals
Illinois removes 401(k), IRA and governmental 457 payouts from state income at any age, early ones included, so a FIRE withdrawal at 44 owes the state nothing.
Illinois: state tax on this withdrawal
$0
Illinois subtracts 401(k), 403(b), IRA and governmental 457 payouts at any age, early ones included.
| Excluded by the state | $40,000 |
| Taxed by the state | $0 |
| Rate used | 4.95 % |
| State early-distribution tax | $0 |
Worked out by Radif Partners · How we calculate · rules read on the Illinois revenue department site, tax year 2026
Among the states on this site that tax income, Illinois treats early retirees best: it lets residents subtract the federally taxed part of distributions from qualified employee benefit plans (Internal Revenue Code sections 402 to 408, 401(k) plans included), IRAs, SEPs and state or local governmental 457 plans, with no minimum age and no dollar cap. Publication 120 says it plainly: "You may include early distributions from qualified plans and IRAs." A withdrawal at 44 that the IRS penalizes is still subtracted on line 5 of Form IL-1040. The one gap is deferred compensation from an employer that is not a government, such as a private 457(b): it stays taxable at the flat 4.95 % rate. Federal tax and the federal 10 % additional tax are untouched by the subtraction. On $60,000 from an IRA at 44, Illinois takes nothing, while the same sum from a private 457(b) would cost $2,970.
No birthday to wait for
Most state breaks for retirement income start at 55, 59½, 62 or 65. Illinois has no age floor. The subtraction follows the federal treatment: whatever part of a plan or IRA payout lands in your federal adjusted gross income comes back out on the Illinois return, in the year you receive it. Publication 120 (revised December 2025) lists qualified employee benefit plans "including 401(k) plans", IRAs and SEPs, and the IL-1040 instructions point to line 5 for the subtraction.
For a FIRE household that matters more than the rate suggests. Someone who stops work at 44 and lives on IRA withdrawals for fifteen years pays no Illinois income tax on any of them. Spread over the bridge years, that is a saving of 4.95 % on every dollar drawn.
Illinois on an IRA payout at 44
Illinois: state tax on this withdrawal
$0
| Excluded by the state | $60,000 |
| Taxed by the state | $0 |
| Rate used | 4.95 % |
| State early-distribution tax | $0 |
The penalty year still counts
The subtraction does not ask whether the IRS charged its 10 %. A rollover IRA tapped at 44 with no exception owes the federal additional tax of $6,000 on $60,000, plus about $5,020 of federal income tax for a single filer with no other income in 2026. On the Illinois side, the full $60,000 is subtracted and the state bill on it is zero. The federal cost is the one to manage, through the rule of 55, a 72(t) series or Roth contributions.
Where Illinois draws the line: private deferred compensation
Publication 120 limits the 457 part of the subtraction to plans of a state or local government. Deferred compensation from a private employer, including a 457(b) offered by a hospital, a university foundation or another tax-exempt body that is not a government, does not qualify and is taxed at 4.95 %. On $60,000 that is $2,970 a year. Someone holding both kinds of account can draw the governmental plan or the IRA first and leave the private plan for later years, or simply plan for the state tax on it.
Moving in or out during the bridge
Because the break is so wide, the state you live in during the early years changes the bill more here than in most places. A resident of Illinois drawing $60,000 a year from an IRA pays no state tax; the same person in a state that taxes early payouts at a similar rate would pay roughly $2,970 a year. The state-by-state page lines up the other rules, and the Iowa page shows a neighbor that waits until 55. Illinois residency rules for movers are not covered here.