South Carolina: state tax on early 401(k) and IRA withdrawals
South Carolina is one of the few states with a retirement deduction at any age: $3,000 a year before 65, as long as the money did not trigger the federal early-withdrawal penalty.
South Carolina: state tax on this withdrawal
$0
South Carolina deducts up to $3,000 of retirement income before 65 and $10,000 from 65, but not the part hit by the federal early-withdrawal penalty.
| Excluded by the state | $0 |
| Taxed by the state | $40,000 |
| Rate used | type your rate |
| State early-distribution tax | $0 |
Worked out by Radif Partners · How we calculate · rules read on the South Carolina revenue department site, tax year 2026
South Carolina lets a taxpayer under 65 deduct up to $3,000 a year of qualified retirement income from their own plan, and up to $10,000 from 65. Qualified income comes from plans defined in Internal Revenue Code sections 401, 403, 408 and 457, so 401(k), 403(b), IRA and 457 payouts all count. There is no minimum age, which is rare, but there is a federal condition: "any portion of qualified retirement income received this tax year that resulted in a federal premature withdrawal penalty does not qualify." A rule of 55 payout or a 72(t) series keeps the deduction; a penalized IRA withdrawal loses it. These amounts come from the 2025 SC1040 instructions. For 2026, H. 4216 (Act No. 110, signed March 30, 2026) sets a rate of 1.99 % on income under $30,000 and 5.21 % minus $966 from $30,000 up, replacing a 2025 schedule that topped at 6 %. On $18,000 at 56 with no federal penalty, $15,000 remains after the deduction.
A small deduction with no age floor
Most states wait until 55, 59½ or 62 before offering anything on retirement income. South Carolina starts at any age: the 2025 instructions say "an individual who is under age 65 may claim a retirement deduction up to $3,000 on qualified retirement income from their own plan." For a FIRE retiree at 48 living on a 401(k) under a federal exception, that is $3,000 a year off the state return from the first year of withdrawals.
The deduction stops at the federal penalty. Any portion that "resulted in a federal premature withdrawal penalty does not qualify." The test is the money, not the person: if part of a payout is covered by a federal exception and part is not, the covered part can be deducted.
South Carolina at 56, no federal penalty
South Carolina: state tax on this withdrawal
$0
| Excluded by the state | $3,000 |
| Taxed by the state | $15,000 |
| Rate used | type your rate |
| State early-distribution tax | $0 |
The 2026 rate under H. 4216
The legislature rewrote the rate schedule for tax year 2026. The Department of Revenue's summary of H. 4216 gives two lines: 1.99 % on income under $30,000, and "the tax rate for income from $30,000 and above is 5.21%, minus $966." The two formulas meet at $30,000, where both give $597, so there is no jump at the threshold. For 2025 the top rate was 6 %.
| Payout at 56 | Federal 10 % | SC deduction | SC taxable | SC tax 2026 |
|---|---|---|---|---|
| $18,000, rule of 55 or 72(t) | no | $3,000 | $15,000 | $299 |
| $18,000, IRA with no exception | yes | $0 | $18,000 | $358 |
| $45,000, rule of 55 or 72(t) | no | $3,000 | $42,000 | $1,222 |
The deduction is small next to the federal penalty. On the IRA line, the IRS takes $1,800 while the lost South Carolina deduction costs $60. The order of priorities is clear: keep the federal label clean through the rule of 55 or a 72(t) series, and the state deduction follows.
From 65: $10,000, and a separate age deduction
At 65 the retirement deduction rises to $10,000. The 2025 instructions also describe a separate $15,000 deduction for taxpayers 65 and older, reduced by any retirement deduction claimed. We have not read how the 2026 law treats that age deduction, nor the full text of H. 4216 on the retirement deduction itself; the Department's summary does not mention a change to either.
Couples
The deduction applies to income from your own plan, so each spouse claims it on their own retirement income. A couple both under 65, each drawing from their own 401(k) or IRA without a federal penalty, can deduct up to $6,000 together. The state comparison shows how small this is next to Georgia or Colorado, and how early it starts.