Updated October 16, 2026. Quick answer: South Carolina’s retirement deduction is written for the account owner: the instructions say it is allowed for an individual taxpayer “who is the original owner of a qualified retirement account”, only a surviving spouse is given the deceased spouse’s age, and the documents read do not describe a non-spouse beneficiary.
South Carolina at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income, with a retirement deduction written for the original owner of a qualified retirement account |
| Do the state’s documents address beneficiaries? | Addressed for a surviving spouse only; non-spouse beneficiaries are not described |
| Retirement exclusion or credit | Up to $3,000 if under age 65 and up to $10,000 at 65 or older on qualified retirement income (2025); a surviving spouse may deduct up to $3,000 or $10,000 based on the deceased spouse’s age; a separate $15,000 deduction applies from the tax year a resident reaches age 65, reduced by the retirement deductions claimed |
| Rate in the documents read | 2025 schedule for taxable income of $100,000 or more: multiply by 6%, then subtract $642 |
| State inheritance or estate tax | S.C. Code 12-6-1130(3) refers to the South Carolina Estate Tax when computing the deduction for estate taxes allowed by IRC Section 691(c) |
| Changed for 2026? | No 2026 change to this rule is stated in the documents read |
What the South Carolina documents say
The SC1040 instructions limit the deduction to the owner’s own plan. Line p-1 says to “Include only qualified withdrawals from the taxpayer’s own qualified retirement plan”.
An individual under age 65 may claim up to $3,000 on qualified retirement income from their own plan, and an individual age 65 or older may claim up to $10,000. The statute behind the deduction is S.C. Code 12-6-1170.
Line p-3 covers a surviving spouse receiving qualified retirement income on behalf of a deceased spouse, who may deduct up to $3,000 or $10,000 based on the age the deceased spouse would have reached. The surviving spouse “must receive the decedent’s retirement income as a surviving spouse”. The documents read do not describe a non-spouse beneficiary.
A separate age 65 and older deduction, line q, is not limited to retirement income: a resident who reaches age 65 is entitled to “a deduction of $15,000 against any South Carolina income”. The instructions reduce it by any individual retirement deduction claimed on lines p-1 and p-2 and any military retirement deduction claimed on lines p-4 and p-5, and say a surviving spouse deduction on line p-3 or line p-6 does not reduce it.
The 2025 tax rate schedule says that for income of $100,000 or more you multiply by 6% and subtract $642.
The federal 10-year rule and your South Carolina tax year
IRS Publication 590-B says a beneficiary may be required to take the entire account balance by the “end of the 10th year following the year of the owner’s death”, with exceptions for certain beneficiaries. Because the balance generally has to come out within that window, the timing of each withdrawal decides which tax year it lands in. See the 10-year rule and annual RMDs, lump sum versus spreading withdrawals and inherited IRA rules.
Withholding and other state taxes
Whether a state withholds from a withdrawal is a separate rule: see state withholding on retirement withdrawals. For South Carolina’s own death taxes, see inheritance tax by state.
What the documents do not say
- The documents read do not describe a non-spouse beneficiary’s inherited IRA for the retirement deduction.
- The instructions say nothing about income in respect of a decedent; the statute’s one reference is to the estate tax deduction in IRC Section 691(c).
- They do not say whether the age 65 tests, for the retirement deduction or for the line q deduction, look to a non-spouse beneficiary or to the original owner.
Common mistakes
- Assuming South Carolina’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with a South Carolina preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether South Carolina taxes 401(k) and IRA withdrawals, South Carolina retirement taxes, inheritance tax by state, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 Individual Income Tax Instructions (SC1040): https://dor.sc.gov/sites/dor/files/forms/SC1040Instr_2025.pdf
- South Carolina Code of Laws Title 12 Chapter 6: https://www.scstatehouse.gov/code/t12c006.php
- SC1040TT 2025 Individual Income Tax Tables and Tax Rate Schedule: https://dor.sc.gov/sites/dor/files/forms/SC1040TT_2025.pdf
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/pub/irs-pdf/p590b.pdf
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.