My inherited IRA payments pass from my father's estate, through a trust, and finally to me -- and the 1099-R was issued to the estate, not to me directly. Do I still get Illinois's retirement-income subtraction?

Plain-English summary

An Illinois taxpayer receives inherited IRA payments that flow through a multi-step chain: his father's estate receives the distributions and the Form 1099-R, the estate passes them to a trust in the taxpayer's name, and the trust makes further distributions to him, reported to him on a K-1. He asked whether this income still qualifies for Illinois's retirement-income subtraction, since he'd gotten conflicting answers from Department representatives -- one told him the 1099-R had to be issued directly to him for the subtraction to apply.

The subtraction follows the money, not the 1099-R's name. Illinois has two parallel retirement-income subtractions: one for individuals (35 ILCS 5/203(a)(2)(F)) covering amounts included in federal income under specific IRA/retirement-plan Internal Revenue Code sections (402(a), 402(c), 403(a), 403(b), 406(a), 407(a), 408), and a materially identical one for trusts and estates computing their OWN base income (35 ILCS 5/203(c)(2)(H)). Federally, IRA distributions are included in the gross income of whoever the "payee or distributee" actually is (IRC § 408(d)).

Applying the chain, step by step:

• To the extent IRA distributions are RETAINED by the ESTATE (not passed further), the estate itself is entitled to the § 203(c)(2)(H) subtraction on its own return.
• To the extent distributions are RETAINED by the TRUST, and are still federally characterized as IRA distributions under IRC § 408, the trust is entitled to the § 203(c)(2)(H) subtraction.
• Finally, to the extent the BENEFICIARY receives distributions from the trust that are federally characterized the same way, the beneficiary is entitled to the individual § 203(a)(2)(F) subtraction.

Bottom line: the subtraction is available at whichever point in the chain the money is actually retained or received, provided the federal characterization as an IRA distribution carries through -- it doesn't matter that the original 1099-R was issued to the estate rather than directly to the ultimate beneficiary.

What this means for you

Beneficiaries receiving inherited IRA money through an estate or trust

Don't assume you lose the Illinois retirement-income subtraction just because the 1099-R wasn't issued in your name -- the subtraction follows the distribution through the estate/trust chain to whoever actually ends up with each dollar, as long as it remains characterized federally as an IRA distribution.

Estates and trusts holding IRA distributions before passing them on

If your estate or trust retains part of an IRA distribution rather than passing it all the way through to the ultimate beneficiary, the entity itself (not just the eventual beneficiary) can claim the parallel § 203(c)(2)(H) subtraction on the portion it retains.

Accountants and tax professionals

Don't rely on informal, conflicting verbal guidance from Department representatives on multi-step subtraction questions like this -- as this letter shows, getting a written General Information Letter resolved a genuine internal inconsistency in informal answers.

Common questions

Q: Do I need to receive the 1099-R directly to claim Illinois's retirement-income subtraction?
A: No -- the subtraction follows the IRA distribution through an estate-to-trust-to-beneficiary chain regardless of whose name is on the original 1099-R.

Q: What if the estate or trust keeps some of the IRA money instead of passing it all to me?
A: The estate or trust itself can claim the parallel subtraction (§ 203(c)(2)(H)) for the amount it retains, while you claim the individual subtraction (§ 203(a)(2)(F)) for whatever is actually distributed to you.

Q: Does this apply to any retirement account, or just IRAs?
A: This letter specifically addresses IRA distributions under IRC § 408; the subtraction also covers other retirement/disability plan distributions listed in IITA § 203(a)(2)(F)/(c)(2)(H), but each type has its own federal characterization requirements.

Q: What if Department representatives give me conflicting informal answers on a subtraction question?
A: Consider requesting a written General Information Letter, as this taxpayer did -- it resolves the inconsistency with a citable, documented answer, even though a GIL itself isn't binding on the Department.

Citations and references

Statutes:

• 35 ILCS 5/203(a)(2)(F) (individual retirement-income subtraction)
• 35 ILCS 5/203(c)(2)(H) (parallel subtraction for trusts and estates)
• 26 U.S.C. § 408(d) (IRA distributions included in gross income of the payee/distributee)
• 26 U.S.C. § 7701(a)(37) (definition of "individual retirement plan")

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2025/it25-0006-gil.pdf

Original ruling text

IT 25-0006-GIL 07/29/2025 SUBTRACTIONS
Retirement income, including amounts passed through from an estate or
trust, is eligible for a subtraction modification under IITA Section 203(a)(2)(F).
July 29, 2025
NAME
ADDRESS
Re:

Taxability of Retirement Plan Income (Individuals)

Dear NAME:
This letter is in response to your letter dated October 3, 2023, in which you
requested information. The Department issues two types of letter rulings. Private
Letter Rulings (“PLRs”) are issued by the Department in response to specific
taxpayer inquiries concerning the application of a tax statute or rule to a particular
fact situation. A PLR is binding on the Department, but only as to the taxpayer who
is the subject of the request for ruling and only to the extent the facts recited in the
PLR are correct and complete. Persons seeking PLRs must comply with the
procedures for PLRs found in the Department’s regulations at 2 Ill. Adm. Code
1200.110. The purpose of a General Information Letter (“GIL”) is to direct taxpayers
to Department regulations or other sources of information regarding the topic about
which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our
website at https://tax.illinois.gov/ to review regulations, letter rulings and other
types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
I am writing in regards to the law relating to the taxability of retirement plan
income for individuals.
I have an Illinois taxpayer [who is XX years old] that is receiving inherited IRA
payments via his father’s estate. The payments pass from the estate to a
trust in the taxpayer’s name to the taxpayer. The 1099R is received by the
estate not the taxpayer. The income is reported on form K1 for the taxpayer.
The question is – does this qualify to be excluded from the taxpayer’s
income?

COMPANY/NAME
Page 2
July 29, 2025
I received 2 different answers form agents at the Department of Revenue so
they suggested I write and request a written answer. One said the taxpayer
must receive the 1099R directly.
Thanks in advance for your consideration.
RULING
Under the Illinois Income Tax Act (“IITA” 35 ILCS 5/101 et seq. ), the base income for
individuals is equal to their federal adjusted gross income, modified by certain
statutorily prescribed addition and subtraction provisions. See IITA §203(a). IITA
§203(a)(2)(F) provides the following subtraction modification:
(F) An amount equal to all amounts included in [federal AGI]
such total pursuant to the provisions of Sections 402(a), 402(c),
403(a), 403(b), 406(a), 407(a), and 408 of the Internal Revenue Code,
or included in such total as distributions under the provisions of any
retirement or disability plan for employees of any governmental
agency or unit, or retirement payments to retired partners, which
payments are excluded in computing net earnings from self
employment by Section 1402 of the Internal Revenue Code and
regulations adopted pursuant thereto;…
§203(c) relates to base income of trusts and estates. Specifically, §203(c)(2)(H)
provides as follows:
(H) An amount equal to all amounts included in such total pursuant
to the provisions of Sections 402(a), 402(c). 403 (a), 403(b), 406(a), 4079a) an
d408 of the Internal Revenue Code or included in such total as distributions
under the provisions of any retirement or disability plan for employees of any
governmental agency or unit, or retirement payments to retired partners,
which payments are excluded in computing net earnings from self
employment by Section 1402 of the Internal Revenue Code and regulations
adopted pursuant thereto;
§ 408(d) of the Internal Revenue Code (26 USC §408(d)) states in pertinent part as
follows:

COMPANY/NAME
Page 3
July 29, 2025
(d)TAX TREATMENT OF DISTRIBUTIONS
(1)IN GENERAL. Except as otherwise provided in this subsection, any
amount paid or distributed out of an individual retirement plan shall be
included in gross income by the payee or distributee as the case may
be, in the manner provided under section 72.
§7701(a)(37) of the Internal Revenue Code (26 USC §7701(a)(37)) defines the term
“individual retirement plan” to include an individual retirement account described in
IRC §408(d). Publication 120, “Retirement Income,” also addresses the nature of
retirement income and lists many types of retirement income such as 401(k), IRAs,
and deferred compensation.
In this case, you represent that distributions from the inherited IRA are received by
the estate. The estate then makes distributions to a trust, and the trust makes further
distributions to its beneficiary. The estate receives the 1099R (form for reporting
distributions from an IRA), and distributions from the estate and trust are reported to
the respective beneficiaries on K-1s (used to report distributions from trusts and
estates).
To the extent distributions from the IRA are retained by the estate, the estate is
entitled to the subtraction modification under IITA Section 203(c)(2)(H). To the
extent that the distributions received by the trust are retained by the trust and
characterized federally as distributions from an individual retirement account
included in gross income under the rules of IRC Section 408, the trust is entitled to
the subtraction modification under IITA Section 203(c)(2)(H). Finally, to the extent
that distributions received by the beneficiary of the trusts are characterized
federally as distributions from an individual retirement account included in gross
income under the rules of IRC Section 408, the beneficiary is entitled to the
subtraction modification under IITA Section 203(a)(2)(F).
I hope this information is helpful. If you require additional information,
please visit our website at https://tax.illinois.gov/ or contact the Department’s
Taxpayer Information Division at 800-732-8866.
Sincerely,

Javonna Ackerman
Associate Counsel