South Carolina Taxes on Pensions, IRAs, and 401(k)s

If you’re retired or planning retirement in South Carolina, it’s important to understand how the state taxes different types of retirement income.

South Carolina is considered relatively retirement-friendly because it offers generous retirement income exclusions that can reduce or eliminate state tax on many retirement sources.

You can feel reassured knowing South Carolina provides significant deductions that may reduce your taxable income in retirement.

South Carolina Income Tax Overview

South Carolina uses a graduated income tax system. The state begins with your federal Adjusted Gross Income (AGI) and then applies state-specific subtractions and deductions to calculate taxable income.

There are no separate local or city income taxes on retirement income in South Carolina.

Social Security Benefits

South Carolina does not tax Social Security benefits.

This includes:

• Social Security retirement benefits

• Social Security disability benefits

• Railroad Retirement Tier 1 benefits

Even if a portion of your Social Security is taxable at the federal level, it is fully exempt from South Carolina income tax.

Example:
A retiree receiving $28,000 in Social Security benefits owes no South Carolina income tax on that amount.

Pension Income in South Carolina

South Carolina allows a generous pension and retirement income deduction for qualifying taxpayers.

Eligible income may include:

• Private employer pensions

• Government pensions

• Federal civil service pensions

• Military retirement pay

You may be able to deduct a significant portion of your pension and retirement income, based on your age and filing status. This deduction often reduces the amount of pension income subject to South Carolina tax.

Example:
If you receive $40,000 from a private pension and qualify for the retirement deduction, a large portion of that income may be excluded from South Carolina’s taxable income.

IRA Withdrawals

Traditional IRA withdrawals are generally taxable in South Carolina because they are included in federal taxable income.

However, you may qualify to subtract all or part of that income under South Carolina’s retirement income deduction, depending on your age and income level.

This includes:

• Regular IRA withdrawals

• Required Minimum Distributions (RMDs)

• Early withdrawals

Roth IRA qualified distributions are generally not taxable because they are not included in federal taxable income.

401(k) and 403(b) Withdrawals

Distributions from 401(k) and 403(b) plans are generally taxable in South Carolina if they are taxable federally.

However, these withdrawals may qualify for the state’s retirement income deduction, depending on eligibility.

Roth 401(k) qualified distributions are generally not taxable at the state level if they are not taxable federally.

Military Retirement Income

South Carolina provides special treatment for military retirement pay.

Military retirement income is often exempt under the state’s retirement income deduction, subject to eligibility based on age and income.

Veterans’ disability benefits generally are not taxable because they are not included in federal taxable income.

Income Limits and Phaseouts

Certain retirement income deductions in South Carolina may phase out or be limited at higher income levels.

The amount you can exclude depends on:

• Filing status

• Age

• Total retirement income

Monitoring your AGI and retirement income can help you manage state tax liability.

Planning Tips for South Carolina Retirees

• Social Security is fully exempt

• A significant retirement income deduction may apply

• Roth withdrawals can provide tax flexibility

• Plan distributions to stay within deduction limits

• Coordinate federal and state tax planning

Proper planning can help reduce your South Carolina taxable income in retirement.

💻 Electronic Filing Recommendation

E-filing your South Carolina return is recommended:

• Automatic retirement income deduction application

• Built-in Social Security exemption

• Accurate reporting of retirement sources

• Reduced math errors

• Faster processing

Tax software can apply South Carolina-specific retirement rules once your income and age are entered.

Final Thoughts

South Carolina taxes pension, IRA, and 401(k) withdrawals as ordinary income, but offers generous deductions that may reduce or eliminate state tax for qualifying retirees.

Social Security benefits are fully exempt, and additional retirement income deductions are available based on age and total income.