Income tax for individuals
South Carolina Retirement Income Deduction and the Age 65 Deduction
South Carolina lets the original owner of a qualified retirement plan deduct up to $3,000 of taxable retirement income a year, rising to $10,000 from the year they turn 65. Separately, residents 65 and older get a deduction of up to $15,000 each against any kind of income, reduced by the retirement deduction they claim. H.4216 did not amend Section 12-6-1170, which holds both deductions.
- Under 65: up to $3,000 of qualified retirement income, if you are the original owner of the plan.
- From the year you turn 65: up to $10,000 of qualified retirement income.
- Age 65 and older deduction: up to $15,000 per person against any South Carolina income, minus your own retirement and military retirement deductions.
- Inherited accounts do not qualify unless you are the surviving spouse.
- SCDOR's 2026 filing thresholds are built on the age 65 deduction, confirming it continues.
- Retirement distributions still raise federal AGI, which can shrink the new SCIAD.
Who this applies to
- Retirees drawing pensions, IRA, 401(k), 403(b) or 457 distributions from their own accounts
- Federal, state and local government retirees
- Residents 65 and older with any type of income, including wages
- Surviving spouses receiving a deceased spouse's retirement income
Who this may not apply to
- Non-spouse beneficiaries of inherited IRAs and 401(k)s, for the retirement deduction
- Distributions subject to the federal early-withdrawal penalty
- Nonresidents, for the age 65 deduction, which the statute limits to residents
Status for 2026 under H.4216
H.4216 (Act No. 110 of 2026) rewrote South Carolina's rates and replaced the federal standard deduction with the South Carolina Income Adjusted Deduction, but it did not amend Section 12-6-1170. The retirement income deduction and the age 65 and older deduction remain in the Code as published on scstatehouse.gov. The act's own text refers to the age 65 deduction in the new filing requirement, and SCDOR's Information Letter #26-20 sets the 2026 filing thresholds for people 65 and older at the SCIAD plus $15,000 per qualifying person. SCDOR had not published the 2026 SC1040 or its instructions as of 25 October 2026, so the 2026 line numbers and worksheets are not yet known. The rules below come from the statute, SC Revenue Ruling #22-11 and SCDOR's most recent (2025) instructions.
The two deductions side by side
| Retirement income deduction | Age 65 and older deduction | |
|---|---|---|
| Code section | 12-6-1170(A) | 12-6-1170(B) |
| Who | Original owner of a qualified retirement plan, any age (plus surviving spouses) | Resident individuals from the year they turn 65 |
| Maximum | $3,000 a year under 65; $10,000 a year from the year you turn 65 | $15,000 per qualifying person; on a joint return $15,000 if one spouse is 65+, $30,000 if both |
| Income it offsets | Taxable qualified retirement income only | Any South Carolina taxable income: wages, interest, capital gains, retirement |
| Reduced by | Your own military retirement deduction | Your own retirement and military retirement deductions (not amounts claimed as a surviving spouse) |
What counts as qualified retirement income
The statute defines retirement income as otherwise taxable income, not subject to a premature distribution penalty, from plans under Internal Revenue Code Sections 401, 403, 408 and 457 and from all public employee retirement plans of the federal, state and local governments, including military retirement. In practice that covers pensions, traditional IRAs, 401(k) and 403(b) plans, 457 plans, SEP and SIMPLE IRAs (which are Section 408 arrangements) and Keogh plans.
Some retirement-type income does not qualify because South Carolina does not tax it in the first place: Social Security, railroad retirement, and disability retirement income deducted under the separate total and permanent disability rule. Any portion of a distribution that triggered the federal early-withdrawal penalty is also excluded, even though South Carolina has no such penalty of its own.
The original owner rule
The deduction belongs to the person who owns the account. SC Revenue Ruling #22-11 uses the example of a sister who inherits her brother's 401(k): distributions from the inherited account do not qualify, though distributions from her own plan do. The exception is a surviving spouse, who applies the deduction to the deceased spouse's retirement income as the deceased spouse would have, using the age the deceased spouse would have been on 31 December of the tax year. That surviving-spouse deduction is in addition to the deduction on the survivor's own retirement income.
How the age 65 deduction stacks on top
The age 65 deduction does not require retirement income. SCDOR's revenue ruling describes it as available against wages, investments, business income, capital gains or retirement income. Because it is reduced by your own retirement deduction, the combined maximum per person is $15,000, split between the two. Examples from SCDOR's 2025 instructions and the revenue ruling:
- Age 67, $14,000 of IRA distributions: $10,000 retirement deduction plus $5,000 age 65 deduction, $15,000 in all.
- Age 67, no retirement income, still working: $15,000 age 65 deduction against wages.
- Married, both 65, one spouse earns $100,000 in wages and the other has no income: $30,000 age 65 deduction on the joint return. SCDOR does not trace income spouse by spouse.
- Married, one spouse 66 and one 60: $15,000 age 65 deduction, usable against either spouse's income on the joint return. The younger spouse can still take up to $3,000 on retirement income from their own plan.
Retiring before 65
A Charleston-area teacher or public employee who starts drawing a pension at 55 can deduct up to $3,000 of it each year until the year they turn 65, when the cap rises to $10,000 and the age 65 deduction becomes available on top. SCDOR's revenue ruling gives the example of someone drawing $12,000 a year from a government pension from age 50. Early withdrawals that carried a federal penalty do not count toward the $3,000.
What changes around these deductions in 2026
The deductions themselves are untouched, but the return around them has changed. From 2026 the South Carolina calculation starts from federal AGI, and the SCIAD phases out as federal AGI rises above $40,000 (single), $60,000 (head of household) or $80,000 (joint). Retirement distributions are part of federal AGI before South Carolina subtracts the $3,000 or $10,000, so a large IRA withdrawal or Roth conversion can reduce the SCIAD even when part of the distribution is deducted later. Under the formula in Section 12-6-1140(15), each extra dollar of federal AGI in the phase-out range removes about 27 cents of SCIAD.
The new federal senior deduction does not carry over. SCDOR lists it, along with the standard and itemized deductions, among the federal deductions South Carolina stopped using in 2026. For South Carolina, the age 65 deduction is the senior benefit.
Records worth keeping
- Form 1099-R for each distribution, showing the distribution code (early distribution codes matter for the penalty rule).
- For a surviving spouse, the deceased spouse's date of birth; SCDOR asks for a statement when the deduction is claimed for more than one deceased spouse.
- For military retirees, the split between military and civilian retirement income, since the military deduction reduces both deductions here.
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Sources
- SC Code of Laws, Title 12, Chapter 6 (Income Tax Act)
- SC General Assembly — H.4216 (Act No. 110 of 2026), ratified text
- SCDOR — Information Letter #26-20, Individual Income Tax Reform (31 Aug 2026)
- SCDOR — SC Revenue Ruling #22-11, Age 65, General and Military Retirement Deductions
- SCDOR — 2025 SC1040 Individual Income Tax Instructions
- SCDOR — Retirees: lower your Individual Income Tax bill with these five tips
South Carolina publishes new guidance and local governments change their rates, so check the source pages for anything that has moved since the date above. The information on this site is general in nature and is not tax, legal, or accounting advice for your situation. Tax law changes and the right answer depends on facts we would need to review with you. Please speak with a qualified professional before acting on anything you read here.
Questions people ask about this
Can I take the South Carolina retirement deduction on an inherited IRA?
Only if you inherited it from your spouse. The deduction is limited to the original owner of the account, with an exception for a surviving spouse receiving the deceased spouse's retirement income. A child, sibling or other non-spouse beneficiary cannot use it on distributions from the inherited account.
Do I need retirement income to claim the age 65 deduction?
No. A South Carolina resident can take up to $15,000 against any taxable income starting in the year they turn 65, including wages, interest and capital gains. It is reduced by any retirement or military retirement deduction you claim on your own income.
How much pension can I deduct if I retire at 60?
Up to $3,000 a year of taxable pension income from your own plan until the year you turn 65. From that year the limit becomes $10,000, and the age 65 deduction can cover up to $5,000 more of any income, for $15,000 in total.
Did H.4216 eliminate South Carolina's retirement deduction?
No. H.4216 did not amend Section 12-6-1170, and SCDOR's 2026 filing thresholds are built on the age 65 deduction. SCDOR has not yet published the 2026 form and instructions, so the 2026 line placement is still to come.
Keep reading
- SC military retirement deductionSouth Carolina lets a military retiree deduct all military retirement income included in South Carolina taxable income, at any age, under Section 12-6-1171. Surviving spouses can deduct military survivor benefits and dependency and indemnity compensation the same way. H.4216 did not amend Section 12-6-1171, but the military deduction still reduces the retiree's own general retirement and age 65 deductions.
- Does SC tax Social Security?No. South Carolina computes gross income without Internal Revenue Code Section 86, the federal rule that makes part of Social Security taxable, so Social Security and Tier 1 railroad retirement benefits are not taxed by the state. H.4216 did not change that. What is new for 2026 is that the taxable part of your benefits is still counted in federal AGI, which South Carolina now uses to phase out its new SCIAD.
- The SC Income Adjusted DeductionThe South Carolina Income Adjusted Deduction (SCIAD) replaces the federal standard and itemized deductions on South Carolina returns from tax year 2026. It is $15,000 for single or married filing separately, $22,500 for head of household and $30,000 for married filing jointly or surviving spouse, and it phases out as federal AGI rises, disappearing at $95,000, $142,500 and $190,000 respectively.
- Choosing a Retirement Plan: SEP, SIMPLE or Solo 401(k)The three plans a small business usually chooses between are not ranked. They trade capacity against cost against paperwork, and the right answer changes the moment you hire someone.
- The SC 529 plan deductionSouth Carolina lets you deduct contributions to its own Section 529 college savings plan, Future Scholar, up to the plan's maximum account limits, with no separate state dollar cap. Contributions made during 2026 or by April 15, 2027 can be deducted on the 2026 return. H.4216 did not change this deduction, so it still sits on top of the new SC Income Adjusted Deduction.
- SC 44% capital gains deductionSouth Carolina lets individuals, estates and trusts deduct 44% of their net capital gain, which is net long-term gain (assets held more than one year) minus net short-term loss. At the 2026 top rate of 5.21%, that taxes the remaining 56% of a long-term gain at an effective rate of about 2.9%. H.4216 did not amend Section 12-6-1150, but the full gain still counts in federal AGI for the new SCIAD phase-out.
- SC estimated tax in 2026South Carolina expects estimated payments from anyone who will owe $100 or more after withholding, but the 2026 SC1040ES worksheet was printed before H.4216 and still uses the old rates and starting point. For 2026, estimate from federal AGI using the new SCIAD and the 1.99% and 5.21% rates. You avoid an underpayment penalty if your withholding and timely estimates cover at least 90% of your 2026 tax or 100% of your 2025 tax, rising to 110% if your 2025 AGI was over $150,000.
- South Carolina tax guideHow South Carolina taxes income, businesses and property, and what the Charleston area adds on top, with the state or local source beside every rule.
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