Does South Carolina Tax 401(k) Withdrawals? What Retirees Keep in 2026

Yes, South Carolina taxes 401(k) withdrawals.

The state counts every dollar you pull out as ordinary income.

The good news?

That sounds worse than it plays out.

A pair of retirement deductions and a bigger break at 65 leave many retirees owing far less than they expected coming from higher-tax states.

Once you turn 65, the deductions stack up fast enough that the tax on a modest 401(k) draw can shrink to almost nothing.

Note: This is general information, not financial or tax advice. Tax rules and dollar amounts are subject to change, so confirm the current details with a professional.

Does South Carolina Tax 401(k) Withdrawals?

Yes, it does.

Your state return in South Carolina starts from your federal adjusted gross income, so a traditional 401(k) or IRA withdrawal that’s taxable to the IRS is taxable in Columbia too.

There’s no special discount rate for retirement money, so those dollars land in the same graduated brackets as a paycheck.

The rate itself is the good news.

The state’s top income tax rate has fallen to 5.21% for 2026, down from 7% back in 2021.

Only the highest slice of income is taxed at that rate.

So the answer to whether South Carolina taxes 401(k) withdrawals is yes, with an asterisk the size of the Lowcountry.

The Deduction That Shrinks Your Bill

You can subtract a chunk of your retirement income before South Carolina figures the tax.

Under 65, you can deduct up to $3,000 of qualifying retirement income each year.

At 65, that jumps to up to $10,000 a year.

Qualifying income means the usual retirement paychecks: 401(k) distributions, IRA withdrawals, and pension payments.

It’s per taxpayer, too.

A married couple in Greenville who both draw from their own accounts can each claim the deduction, so the household writes off double.

Turning 65 Unlocks $15,000 More

Here’s the break that changes the math for retirees: Starting the year you turn 65, you can claim a $15,000 deduction against any South Carolina income you have.

Not just retirement income.

It can offset a 401(k) draw, a part-time paycheck at the hardware store, or investment income all the same.

One caveat keeps it from being a free stack: You have to subtract any retirement deduction you already claimed from that $15,000.

So take the $10,000 retirement deduction, and the age-65 deduction gives you another $5,000 on top.

It’s still per person, so a couple where both spouses are 65 can shelter a real pile of income between them.

What the State Leaves Alone

South Carolina doesn’t tax your Social Security check.

Any Social Security or railroad retirement benefit that’s taxed on your federal return, you subtract right back out on your state return.

That’s a big deal for a retiree living near Myrtle Beach on a Social Security check and a modest 401(k) draw.

The benefit lands untaxed by the state, every month.

It puts South Carolina in the company of the roughly 40 states that leave Social Security alone, even though it still taxes part of your 401(k).

That’s most of the country.

Military Pay Skips the Tax Entirely

Retired from the armed forces? South Carolina taxes none of your military retirement pay.

All of it is fully exempt, at any age, thanks to a 2022 law that ended the state’s tax on military pensions.

A surviving spouse drawing that military retirement can claim the same exemption.

That’s part of why so many veterans retire around Beaufort and the bases along the coast.

Those veterans keep the pension in full.

What a Real Retiree Owes

Put the pieces together and the tax on a typical withdrawal gets small fast.

Picture a 67-year-old in Bluffton pulling $25,000 from a 401(k), on top of a Social Security check the state ignores.

The retirement deduction knocks $10,000 off that withdrawal right away.

The age-65 deduction covers much of what's left, so only a few thousand dollars ever reaches the 5.21% rate.

The tax on that can come out to less than a nice dinner on the water in Charleston.

That's the whole bill.

Pull a much bigger sum in one year.

More of it stays exposed, which is why some retirees spread their withdrawals out.

The Property Tax Break Nobody Files For

The 401(k) tax rarely stings.

The bigger draw for retirees is the property tax bill.

The state carries one of the lowest effective property tax rates in the country, around 0.49% on owner-occupied homes.

Then there's the homestead exemption.

Once you're 65 and you've lived in the state a full calendar year, the first $50,000 of your legal residence's fair market value is exempt from property tax.

You have to apply for it through your county auditor, though, and it doesn't happen automatically.

Many new arrivals never file, and they hand the county money they could have kept.

How South Carolina Compares

Unlike Florida or Tennessee, where the state never taxes a 401(k) draw, South Carolina isn't a no-tax haven.

It sits a notch below that.

The withdrawal is taxable, but the full Social Security exemption, the retirement deductions, and the age-65 break narrow the real bill to a sliver.

Stack that against the low property taxes and the cost of living around the Upstate or the Grand Strand, and many retirees call the trade a fair one.

You give the state a small cut of the 401(k), and you keep almost everything else.

Frequently Asked Questions

Here are quick answers to the questions South Carolina retirees ask most about their 401(k) money.

Does South Carolina tax 401(k) and IRA withdrawals?

Yes, South Carolina taxes 401(k) and traditional IRA withdrawals as ordinary income. Retirement and age-65 deductions cut that tax sharply for most retirees.

Does South Carolina tax Social Security?

No. Social Security and railroad retirement benefits are fully exempt from South Carolina income tax, even when they're taxed on your federal return.

At what age do the biggest retirement tax breaks start?

At 65. The retirement income deduction rises to $10,000, and you also gain a $15,000 deduction against any income, reduced by the retirement deduction you claim.

Is military retirement taxed in South Carolina?

No. All military retirement pay is fully exempt from South Carolina income tax at any age, and a surviving spouse can claim the same exemption.

What is South Carolina's income tax rate?

South Carolina uses graduated brackets. For 2026, a new state law (H.4216) set the top rate at 5.21%, down from 6% in 2025 and 7% in 2021. Only the highest slice of income is taxed at that top rate.