I'm a U.S. citizen living in Illinois with retirement savings from a former Swedish employer -- can I subtract those distributions from my Illinois income once I start taking them?

Plain-English summary

A U.S. citizen living in Illinois has retirement savings in Sweden from prior employment there, eligible for distribution starting at age 55. Under the U.S.-Sweden tax treaty, those distributions will be taxed by the IRS as pension income. Based on personal research and a conversation with a local Illinois Department of Revenue office, the taxpayer believed the distributions were likely deductible on the Illinois IL-1040 and asked the Department to confirm.

The Department's answer: likely not eligible, and Illinois doesn't decide this from the treaty itself. As in the Department's other recent letters on foreign pensions, whether a payment is subtracted from Illinois adjusted gross income depends on how it's treated federally, which in turn depends on how it's categorized under the applicable treaty and the Internal Revenue Code -- a determination Illinois's Department of Revenue does not make itself.

Why the Swedish pension likely doesn't qualify. Illinois's retirement-income subtraction (35 ILCS 5/203(a)(2)(F)) is tied to specific Internal Revenue Code provisions -- Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 -- covering U.S.-organized qualified employee trusts, certain annuities, overseas-employee benefit plans, and IRAs. None of these appear to apply to a private employer's retirement plan organized in Sweden, so the pension income would not qualify for that subtraction.

The treaty is relevant to federal taxation but doesn't create the Illinois subtraction. The Convention Between the U.S. and Sweden for the Avoidance of Double Taxation discusses pensions in Article 19 and government service in Article 20. The Department again declined to interpret the treaty or federal law itself, noting that's not its role.

Illinois's own published guidance points the same direction. The IL-1040 instructions (IDOR Publication 120) allow subtracting only the federally taxed portion of a "qualified employee benefit plan" as defined in IRC Sections 402-408 -- and foreign pensions aren't included in that description. Whether this pension qualifies as such a plan depends on whether it fits that specific statutory framework.

What this means for you

U.S. residents with retirement savings from a former foreign employer

Informal guidance from a local tax office isn't a substitute for the actual legal test -- as this letter shows, the Department's own written analysis reached a different, more cautious conclusion than what the taxpayer says they were told informally. Confirm foreign retirement income treatment in writing before relying on it.

Anyone assuming "the treaty says it's a pension" is enough for the Illinois subtraction

Being treated as a "pension" for treaty and federal tax purposes doesn't automatically make it eligible for Illinois's specific retirement-income subtraction -- that subtraction has its own, narrower test tied to particular U.S. Internal Revenue Code sections that a foreign private plan typically won't satisfy.

Accountants and tax professionals

This is now the third consecutive General Information Letter applying the same reasoning to a different country's private pension (following companion Illinois GILs on Canadian and UK pensions from the same period): federal/treaty characterization controls, only IRC Sections 402-408 satisfy the general retirement-income subtraction, and the Department will not interpret the treaty itself. Expect this same analysis to apply broadly across countries for privately funded foreign pensions.

Common questions

Q: Can I subtract distributions from a Swedish retirement plan on my Illinois return? A: Likely not under Illinois's general retirement-income subtraction (35 ILCS 5/203(a)(2)(F)), since that subtraction is tied to specific U.S. Internal Revenue Code sections (402-408) that a private Swedish employer plan doesn't appear to satisfy.

Q: A local Department of Revenue office told me it was probably deductible -- can I rely on that? A: Not safely. This written GIL analysis reached a more cautious conclusion than the informal conversation the taxpayer described, and only a written Department response like this carries any weight (and even a GIL isn't binding).

Q: Does the U.S.-Sweden tax treaty make my pension exempt from Illinois tax? A: The treaty affects how the distributions are taxed federally, but it doesn't independently create an Illinois subtraction -- Illinois's own subtraction still requires the payment to fit within the specific IRC 402-408 framework.

Q: Is there any Illinois subtraction that might still apply to foreign retirement income? A: Illinois has a separate subtraction for Social Security and railroad retirement benefits (35 ILCS 5/203(a)(2)(L)), which has applied in other Department letters to foreign government social-security-equivalent programs -- but a private employer plan like this one is a different category.

Citations and references

Statutes and treaty provisions:

• 35 ILCS 5/203(a)(2)(F) (retirement-income subtraction tied to IRC §§ 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), 408)
• 35 ILCS 5/203(a)(2)(L) (Social Security/railroad retirement subtraction tied to IRC §§ 72(r), 86)
• Convention Between the U.S. and Sweden for the Avoidance of Double Taxation (1994, as amended 2005), Article 19 (pensions), Article 20 (government service)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2026.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2026/it26-0005-gil.pdf

Original ruling text

IT 26-0005-GIL 05/04/2026 Subtraction Modification
Private foreign pensions do not qualify for the deduction for retirement income unless included in federal taxable income under Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the Internal Revenue Code (This is a GIL). May 4, 2026 NAME ADDRESS EMAIL Re:

Tax deduction for a private pension funded from Sweden

Dear NAME:
This letter is in response to your letter dated July 31, 2024, 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. INQUIRY: Dear Illinois Department of Revenue. I was directed to this office regarding deduction of foreign pensions. I am a U.S. citizen residing in Illinois with retirement savings in Sweden from my previous employment there. I am eligible to start taking distributions from these savings at any time after age 55. According to the U.S.-Swedish tax treaty, these distributions will be taxed in the U.S. as pensions by the IRS.

NAME
Page 2
May 4, 2026
Based on my research and a conversation with a local IL Department of Revenue office, I understand that these distributions are likely deductible on the IL-1040 form. I would like to confirm this information. Thank you for your assistance. Ps. Feel free to email or call me with questions and your response. DEPARTMENT’S RESPONSE: The determination as to whether or not pension payments are subtracted from AGI in the computation of Illinois base income depends upon how the benefits are treated federally, which in turn depends upon how the benefits are categorized under the USSweden treaty and federal tax law. Whether or not a particular pension is subject to international treaty, or how that payment is to be treated under federal tax law, is not a determination made by the Illinois Department of Revenue. 35 ILCS § 203(a)(2)(F) provides as follows: (F) 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), 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; 26 USC §§401-408 address various concerns connected with taxation of employee trusts, exemptions, annuities, employee benefit plans for the benefit of overseas employees of affiliates of the employer who created that plan, and individual retirement accounts. Section 401 specifically refers to pension trusts “…created or organized in the United States and forming part of a …pension…plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section….” 35 ILCS §203(a)(2)(L) provides as follows: (L) For taxable years ending after December 31,1983, an amount equal to all social security benefits and railroad retirement benefits included in such total pursuant to Sections 72(r) and 86 of the Internal Revenue Code;

NAME
Page 3
May 4, 2026
Section 402 of the Internal Revenue Code deals with distributions from employee trusts exempt under Section 401(a) of the Internal Revenue Code, which provides an exemption for certain employee trusts “created or organized in the United States.” Section 403(a) of the Internal Revenue Code deals with annuities described in Section 404(a)(2) of the Internal Revenue Code, which describes certain annuities purchased by employee trusts exempt under Section 401(a) of the Internal Revenue Code. Section 403(b) of the Internal Revenue Code deals with annuities for employees of exempt organization. Section 406 and 407 of the Internal Revenue Code deals with employee benefit plans under Section 401 that cover overseas employees of affiliates of the employer that created the plan. Section 408 of the Internal Revenue Code deals with individual retirement accounts. None of these provisions appear to apply to a retirement plan of a private employer in Sweden, and the pension income would therefore not qualify for subtraction under IITA Section 203(a)(2)(F). The relevant treaty appears to be the Convention Between the Government of the United States of America and the Government of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (1994, 2005). Article 19 discusses pensions, and Article 20 addresses government service. In your July 31, 2024, letter, you indicated that you reside in Illinois and that you are a U.S. citizen. You stated that you are eligible to take distributions from the “retirement savings” any time after you turn 55. The instructions for the IL 1040 for line 5 describe the rules for adjustments to ‘base income’ where pensions are backed out of Illinois taxable income. Foreign pensions are not included in the descriptions. The relevant instruction in IDOR Publication 120 relates to IL1040 Line 5, that “[w]hat retirement income may I subtract on Form IL 1040, Line 5…….You may subtract the amount of any federally taxed portion (not the gross amount) including 401(k) plans reported on your U.S. 1040 or 1040-SR Line 5b. NOTE: a qualified employee benefit plan is defined in Internal Revenue Code (IRC) Sections 402-408. If you do not know whether your employee benefit plan is qualified check with your employer.” The determination as to whether or not the taxpayer’s pension is a “qualified employee benefit plan,” as noted above, depends upon whether the pension fits within the framework provided in IRC 401, 402-408. The pension plan must meet these relevant

NAME
Page 4
May 4, 2026
statutory standards to possibly be considered exempt from taxation in Illinois. Again, it is not the province of Illinois Department of Revenue to interpret international treaties and federal law. 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. Very truly yours,

JA:sc

Printed by the authority of the State of Illinois
Electronic Only - One Copy
Issued 05/04/2026, Redacted 5/20/2026

Javonna Ackerman
Associate Counsel