Many residents in the Midlands view South Carolina as a "tax-friendly" state, but without specific planning, you may be leaving money on the table. In 2026, the Palmetto State continues to offer a distinct advantage for retirees, though it isn't a total tax exemption.
First, the headline: South Carolina does not tax Social Security benefits1. If your federal return includes taxable Social Security, that amount is fully deductible on your SC return.
For your 401(k) or IRA withdrawals, the state provides a tiered deduction based on age:
Under Age 65: You can deduct up to $3,000 of qualified retirement income.
Age 65 and Older: This deduction jumps to $10,000.
It is a common blind spot for retirees to assume these deductions are automatic or unlimited. If your 401(k) distributions exceed these amounts, the remainder is taxed at the state’s graduated rates. Furthermore, if you are a resident over 65, you may also qualify for a $15,000 deduction3 against any type of SC income (though you must subtract your retirement deductions from this total). Understanding how to layer these deductions is the difference between a successful retirement and an unnecessary tax bill.
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Disclaimer: This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.