Illinois does not have an inheritance tax, so there is not tax upon receipt of the inherited annuity.
It doesn’t tax withdrawals from IRAs. The state doesn’t tax rollovers from a traditional IRA to a Roth IRA. It also doesn’t tax income from retirement annuities, 401(k) plans, 403(b) plans, 457 programs, retirement plans for self-employed people, government/military Thrift Savings Plans, railroad retirement benefits, Social Security, federal retirement savings bonds or pensions.
According to the Illinois Department of Revenue (IDOR), federally taxable distributions from non-qualified annuities are subject to Illinois income tax. Non-qualified annuities are funded with after-tax dollars. Non-qualified annuity income reported on Form 1099-R cannot be reported as a subtraction on IL-1040, Line 5.
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