Tax Guide · South Carolina Retirement Income

South Carolina Retirement Income Tax: What Nobody Mentions

South Carolina has some of the most favorable property taxes in the Southeast. But SC does tax certain retirement income — IRA withdrawals, 401(k) distributions, and pension income above specific thresholds are taxed at marginal rates up to 6.4%. Here is the honest picture.

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What South Carolina Taxes and What It Does Not

Income TypeSC Tax Treatment
Social Security benefitsFully exempt — not taxed at any level
IRA withdrawals (traditional)Taxable above $10,000/yr deduction limit for age 65+
401(k) / 403(b) distributionsTaxable above $10,000/yr deduction limit for age 65+
Private pension incomeTaxable above $10,000/yr deduction limit for age 65+
Military retirement payExempt (SC Code §12-6-1140)
SC state/local government pensionPartially exempt up to $15,000/yr for SC residents
Federal government pensionPartially exempt up to $15,000/yr for SC residents

The $10,000 Deduction for Age 65+

South Carolina residents age 65 and older may deduct up to $10,000 of any qualifying retirement income (IRA, 401(k), pension, annuity) from state income each year. Income above $10,000 is taxable at SC's marginal rates, which top out at 6.4% for income above approximately $17,000. For a retiree drawing $60,000/year from an IRA, the SC taxable income on that withdrawal is $50,000 — potentially $3,200 in state income tax annually at the top rate.

The Illinois comparison (the trap): Illinois exempts 100% of all retirement income — IRA withdrawals, 401(k) distributions, pensions, and Social Security. A retiree moving from Illinois to South Carolina who draws $60,000/year from retirement accounts goes from paying zero Illinois income tax on that income to potentially paying $3,200/year in SC income tax. The SC property tax savings (often cited as a reason to move) may be partially or fully offset by taking on retirement income taxes that previously did not exist. Run your numbers specifically.
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Other States With Full Retirement Income Exemption

Pennsylvania, Mississippi, and Tennessee also provide full or near-full exemptions on retirement income. Florida has no state income tax. Buyers moving from these states to South Carolina should factor the new retirement income tax obligation into their total state tax comparison, not just property taxes.

SC Income Tax Rates (2025)

Taxable IncomeSC Rate
$0 – $3,2000%
$3,201 – $6,4103%
$6,411 – $9,6204%
$9,621 – $12,8205%
$12,821 – $16,0406%
Above $16,0406.4%

SC income tax rates are subject to legislative change. Verify current rates at dor.sc.gov. SC has been gradually reducing its top rate toward 6% over recent years.

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