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Illinois State Tax on inherited IRA?
Old 07-27-2020, 08:09 AM   #1
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Illinois State Tax on inherited IRA?

In the next year I will begin withdrawals on an inherited IRA over a 10 year schedule due to the recent changes in tax law. In Illinois, retirement income is free from State income tax, but I do not know if this applies to inherited IRA withdrawals in the same way it would from regular IRAs. Currently my plan is to make my withdrawals prepaying the appropriate tax, but I am unsure how to treat Illinois. Should I prepay at the fixed state income tax rate, or skip the state tax?

Does anyone know the rules for inherited IRAs in Illinois?

Thanks in advance
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Old 07-27-2020, 08:18 AM   #2
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I'll let Illini on the board give the real answer. But just at a guess I would think that an inherited IRA wouldn't be considered retirement income. That's too easy a target for them to miss.

Hmm... tried to look up the term for a group of people from Illinois, but using those terms just got me a bunch of Covid meeting restrictions links. So forgive me if I got it wrong. It's not simple like Delawarians.
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Old 07-27-2020, 10:48 AM   #3
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I wouldn't think that distributions from an inherited IRA would be taxable since IL doen't tax IRA withdrawals. Couldn't find anything authoritative, but this was on point. YMMV.

https://ttlc.intuit.com/community/re...a%20Roth%20IRA.
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Old 07-27-2020, 10:53 AM   #4
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I'm no expert, and have never lived in Illinois.

The instructions for the apparently relevant line (line 5 of IL-1040) state:

"Enter the amount of federally taxed Social Security and retirement income included in your adjusted gross income on Form IL-1040, Line 1 that you received from
• qualified employee benefit plans (including railroad retirement and 401(K) plans) and Individual Retirement Accounts or self employed retirement plans reported on federal Form 1040 or 1040-SR, Line 4b and 4d."

page 7 of https://www2.illinois.gov/rev/forms/...1040-instr.pdf

When you have an inherited IRA, it is an IRA (duh). So according to the description given above I would exclude it on line 5.

If I were actually in your shoes, I would probably dig into the Illinois state statutes to see if there is any better description. In my state I would not expect there to be, having done this sort of exercise before on a similar type of question.
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Old 07-27-2020, 01:51 PM   #5
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Personal experience here. I am an Illinois resident. Inherited a traditional IRA in 2014 and have had distributions made every year. Currently, Illinois does not tax those distributions. However, can't say how many more years it will stay that way given the poor financial health of the state.
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Old 07-27-2020, 07:54 PM   #6
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Quote:
Originally Posted by KarlH View Post
In the next year I will begin withdrawals on an inherited IRA over a 10 year schedule due to the recent changes in tax law. In Illinois, retirement income is free from State income tax, but I do not know if this applies to inherited IRA withdrawals in the same way it would from regular IRAs. Currently my plan is to make my withdrawals prepaying the appropriate tax, but I am unsure how to treat Illinois. Should I prepay at the fixed state income tax rate, or skip the state tax?

Does anyone know the rules for inherited IRAs in Illinois?

Thanks in advance
we're in illinois and my wife has an inherited IRA. her RMD's are not taxed in illinois. yet.
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