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Does South Carolina Tax 401(k) and IRA Withdrawals? Yes, Partly

Updated October 4, 2026. Quick answer: Yes, with deductions. South Carolina taxes 401(k) and IRA withdrawals, but the SC1040 instructions allow a retirement deduction of “up to $3,000 on qualified retirement income from their own plan”, and up to $10,000 once you are 65. Qualified retirement income includes “individual retirement plans, Keogh plans, and military retirement”.

State retirement-income forms, line by line: South Carolina retirement deduction.

Inherited an IRA? What the state’s own documents say about taxing those withdrawals: South Carolina tax on inherited IRA withdrawals.

Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does South Carolina tax 403(b) and 457(b) withdrawals.

What South Carolina does with 401(k) and IRA withdrawals

The instructions say a resident turning 65 is “entitled to a deduction of $15,000 against any South Carolina income”. The statute limits the retirement deduction to “not more than ten thousand dollars of retirement income”. Any part of the income that carried a federal early-withdrawal penalty does not qualify, and the filer must be the original owner of the account.

ItemWhat the documents say
TreatmentTaxable, with a retirement deduction
Retirement deductionUp to $3,000 under 65; up to $10,000 at 65 or older, on the taxpayer’s own plan
Age 65 deduction$15,000, reduced by the retirement deduction taken
State rates0% to $3,560, 3% to $17,830, then 6.0% (2025 computation)
SourceSouth Carolina Department of Revenue, 2025 SC1040 instructions and tax tables; SC Code 12-6-510 and 12-6-1170

A $40,000 withdrawal

Under 65, the retirement deduction takes up to $3,000 off a $40,000 withdrawal, leaving $37,000 (computed as $40,000 minus $3,000). At 65 or older it takes up to $10,000 and the $15,000 age deduction is reduced by it, so $5,000 more is allowed (computed as $15,000 minus $10,000). The two deductions total $15,000 and leave $25,000 (computed as $40,000 minus $15,000) before the tax computation.

Top rate

The 2025 tax tables direct a filer with income of $100,000 or more to “Multiply the amount on line 5 by 6%” and subtract $642.

What changes in 2026

The documents read print no 2026 rate or deduction change.

Federal rules

The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.

Related: whether South Carolina taxes pensions, how South Carolina taxes retirement income, whether South Carolina taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.

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Sources

Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.

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