Best Annuity Rates in Illinois: 2026 Rate Table
The rates below reflect what A-rated carriers are currently offering in Illinois. Illinois’s low 0.5% premium tax keeps the state competitive, you’ll generally see rates here match or slightly beat neighboring states like Indiana and Missouri.
Rates shown are for informational purposes only and subject to change without notice. Products marked SI use simple interest, effective compound yield is lower than the stated rate. Minimum premiums shown are for non-qualified (after-tax) funds. Always verify current rates with a licensed annuity professional before purchasing.
Rates shift weekly based on the 10-year Treasury yield and carrier inventory levels. To see what’s available right now from multiple carriers side by side, get a free personalized quote.
Illinois retirees are sitting in an unusually favorable spot in 2026. The state’s 0.5% premium tax, one of the lowest in the country, nudges carriers to offer slightly more competitive rates here than in higher-tax states. Couple that with Illinois’ blanket exemption on retirement income, and a retired Chicago schoolteacher can lock in a 5.60% five-year fixed annuity and owe zero state income tax on distributions from a qualified plan rollover.
Client Example
James, a 63-year-old retired Chicago Public Schools teacher, is considering rolling his $225,000 403(b) balance into a multi-year guaranteed annuity before he starts drawing Social Security at 67. At current rates, that $225,000 would grow to roughly $293,000 over five years, guaranteed, with no market exposure. Here’s what Illinois residents need to know before signing anything.
How Illinois Annuity Rates Are Affected by State Regulations
Every insurance carrier selling annuities in Illinois pays a premium tax of 0.5% on the premiums they collect. That’s the price of doing business in the state, and it’s baked into the rates carriers offer.
Why does this matter? Because premium taxes vary widely, California charges 2.35%, and Florida hits 1.75%. The lower the tax, the less a carrier has to withhold from the rate it passes on to you. Illinois’ 0.5% rate is among the five lowest in the nation.
The Illinois Department of Insurance (IDOI) regulates all annuity products sold in the state. Carriers must file their products with the IDOI and comply with Illinois suitability standards, rules that require agents and carriers to confirm an annuity is appropriate for your age, financial situation, and investment horizon before selling it to you.
Illinois also enforces a 10-day free look period. After you receive your contract, you have 10 days to review it and return it for a full refund of your premium if you change your mind. No penalty, no surrender charge.
Illinois Life and Health Insurance Guaranty Corporation
If an insurance carrier fails, which is rare but has happened, the Illinois Life and Health Insurance Guaranty Corporation steps in to protect policyholders. Coverage is capped at $250,000 per carrier for annuity contracts.
This is a state-mandated safety net funded by assessments on all licensed insurers in Illinois. It’s not FDIC insurance, and it only activates in a carrier insolvency. But for the vast majority of policyholders, it provides meaningful protection.
One strategic move: if you’re placing more than $250,000 in fixed annuities, spread it across two or more carriers rather than concentrating with one. James, our Chicago schoolteacher, has $225,000, comfortably within the single-carrier limit. But if he had $400,000, he’d be better served using two carriers and staying within the guaranty limit with each. Learn more at our guide to state guaranty associations.
For additional peace of mind, stick with A-rated carriers. The current fixed annuity rates we display come exclusively from carriers with A-minus or better ratings from AM Best.
Annuity Tax Treatment in Illinois
Here’s where Illinois stands out from most states: Illinois generally does not tax retirement income. That includes distributions from IRAs, 401(k)s, 403(b)s, pensions, and annuities funded with pre-tax dollars.
The state charges a flat 4.95% income tax on wages and other income, but retirement income is specifically carved out of that tax base. So, James rolling his 403(b) into a fixed annuity can take distributions in retirement and owe zero Illinois state income tax on those distributions.
For non-qualified annuities (funded with after-tax dollars), only the earnings portion of each distribution is subject to federal income tax. Illinois follows the same rule, the earnings are potentially taxable at the federal level but typically exempt at the state level under the retirement income exclusion.
This exemption is one reason Illinois has become a surprisingly favorable state for retirees on a fixed income, despite its reputation for high property taxes. If you’re weighing a rollover of qualified retirement funds, compare annuity options before your calendar year closes.
Federal tax note: Withdrawals from qualified annuities (IRA, 401k, 403b rollovers) are taxed as ordinary income at the federal level. Non-qualified annuity gains are also taxed as ordinary income when withdrawn. Required Minimum Distributions apply starting at age 73.
How to Buy an Annuity in Illinois: Step by Step
- Clarify your goal. Are you looking to grow a lump sum safely over 3–7 years? Or do you need guaranteed lifetime income? A fixed or MYGA annuity is ideal for the first goal. An income annuity works for the second. This choice drives everything else. Our MYGA guide breaks down the differences clearly.
- Gather your funds and tax details. Know whether your money is qualified (IRA, 401k, 403b) or non-qualified (after-tax savings). Qualified money goes into an annuity via a tax-free rollover, no tax event at transfer. Non-qualified money has different cost-basis rules. Your tax treatment in Illinois will differ based on this distinction.
- Shop multiple carriers. Don’t accept the first rate you see. Rates vary meaningfully from carrier to carrier, sometimes by 0.30–0.50% on the same term. Use our live rate table to compare current top offers from A-rated carriers side by side.
- Review the contract terms carefully. Before signing, confirm the surrender charge schedule (typically 5–10 years), the free withdrawal provision (most allow 10% per year without penalty), and whether the rate is truly locked for the full term or only for an initial period. Illinois IDOI-licensed carriers must disclose all fees upfront.
- Complete your application and fund the contract. Most carriers accept rollovers directly from your existing 401(k) or IRA custodian. The carrier handles the paperwork, you don’t write a check. For direct transfers with non-qualified funds, your bank wires the premium. You’ll receive your contract within a few weeks, then your 10-day free look period begins.
Ready to get started? Read our full guide to buying an annuity, or skip straight to a free quote comparison from carriers licensed in Illinois.
Frequently Asked Questions About Annuities in Illinois
Do Illinois residents pay state income tax on annuity distributions?
Generally, no, not on qualified annuity income. Illinois exempts distributions from qualified retirement accounts, including 401(k)s, 403(b)s, IRAs, and annuities funded with pre-tax dollars. The state’s 4.95% flat income tax rate applies to wages and other income but not to retirement distributions. Non-qualified annuity earnings may also qualify for the exemption in many cases, though the rules can depend on how the contract is structured. Consult a tax advisor for your specific situation.
How much does Illinois’ guaranty association protect?
The Illinois Life and Health Insurance Guaranty Corporation covers up to $250,000 per carrier for annuity contracts. If you have more than $250,000 to place in fixed annuities, consider splitting the deposit between two A-rated carriers to stay within the protection limit for each. This is a widely used strategy among larger depositors.
What is the surrender period on Illinois annuities?
Surrender periods vary by carrier and product, typically ranging from 3 to 10 years. During this period, withdrawing more than the allowed free withdrawal amount (usually 10% of the contract value per year) triggers a surrender charge. For James’ 5-year MYGA, the surrender period matches the contract term, at the end of year 5, he can withdraw the full balance penalty-free. Always read the surrender schedule before signing.
Can I roll over a 403(b) or 401(k) into an annuity without triggering taxes?
Yes. A direct rollover from a 403(b) or 401(k) into a traditional IRA annuity is a tax-free transaction, no federal or Illinois state income tax due at the time of transfer. The rollover must go directly from the old custodian to the annuity carrier (not through your bank account) to maintain its tax-free status. Your annuity carrier’s onboarding team handles the rollover paperwork in most cases.
Compare Annuity Rates in Other Midwest States
Shopping for the best rate? Guaranty association limits, premium taxes, and available carriers vary by state. Compare rates in nearby states to find the best fit for your retirement plan.
- Best Annuity Rates in Wisconsin
- Best Annuity Rates in Michigan
- Best Annuity Rates in Indiana
- Best Annuity Rates in South Dakota
- Best Annuity Rates in Minnesota
- View All 50 State Rate Pages
You can also compare our current best fixed annuity rates or explore top 5-year MYGA rates nationwide.
