This is incorrect. Illinois allows you to deduct investment management fees on income that is taxable in Illinois but is exempt from federal income tax. Income from Roth retirement accounts is generally not taxable federally or in Illinois, so in this case the deduction for investment management fees on your Roth IRA is not deductible in Illinois.
The most common use case for deducting investment management fees on schedule M of your Illinois return is investment management fees on state/municipal bonds. Referred to on your federal return as tax-exempt interest income. Remember, federally tax-exempt interest income is taxable in Illinois if the state/municipal entity paying interest is not located in Illinois.
Now, assuming you have federal tax-exempt interest income that is taxable in Illinois, and you paid an investment professional for managing the account in which your tax-exempt interest was generated, you can generally calculate the amount to deduct from Illinois income by: (1) calculate the portion of your investment income in the account in which you’re paying investment management fees that’s allocable to tax-exempt interest. eg tax-exempt income divided by total investment income equals the percentage of investment income derived from income that is exempt from federal tax and taxable in Illinois. (2) apply the percentage from (1) to the investment management fees you paid in the account for which you received income that is exempt from federal tax and taxable in Illinois. eg you calculated 15% in step (1) and you paid $1,000 in investment management fees. You can deduct $150 on schedule M on your Illinois tax return.
A couple general notes. Often people have multiple investment accounts, the calculation described above is to ascertain the Illinois deduction from a single account. So if you have multiple investment accounts, you may need to run that calculation for multiple accounts and report the sum of the deductible amounts from each account on your Illinois return.
Also, the deduction calculation only applies to investment accounts that hold investments that produce federal tax-exempt income. So you may need to review your accounts to see which accounts to run the calculation for, but you do not want to perform the calculation generally for all your investment accounts.
Lastly, Illinois does not tax income from qualified retirement accounts AND qualified retirement accounts do not produce portfolio income on your federal return, they produce ordinary income on your federal return when you take a distribution (assuming the retirement account is traditional or pre-tax. Roth accounts generally do not produce taxable income when you take distributions ). In any case, you should never deduct investment management fees from qualified retirement accounts on your Illinois income tax return.
