Is South Carolina Tax-Friendly for Retirees? A 2026 Guide for Maryland Retirees

Yes — and meaningfully so. South Carolina exempts Social Security entirely, allows stacking retirement deductions for residents 65 and older, has no estate or inheritance tax, and dropped its top income tax rate to 5.21% beginning in 2026. For retirees relocating from higher-tax states like Maryland, South Carolina ranks among the most tax-friendly retirement destinations in the country.

This guide walks through how each major source of retirement income is taxed in South Carolina, how the state’s deductions actually stack (the math is trickier than it looks), what changed under the 2026 H.4216 reform, and the practical considerations Maryland retirees should weigh before relocating.

Key Takeaways

• South Carolina does not tax Social Security or railroad retirement benefits.
• Residents 65+ can deduct up to $10,000 of qualified retirement income per person, plus an additional age 65+ deduction reduced by that amount — a combined $30,000 cap on a joint return where both spouses are 65+.
• Military retirees 65+ can deduct up to $30,000 of military retirement income; younger military retirees can deduct up to $17,500 against earned income.
• South Carolina has no estate tax and no inheritance tax — a meaningful contrast with Maryland, which imposes both.
• Beginning in 2026, the top income tax rate dropped to 5.21% under H.4216, with the potential for further reductions through revenue triggers.
• Homeowners 65+ qualify for a $50,000 property tax homestead exemption, with pending legislation (S.768) that could expand it to $150,000.

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How Does South Carolina’s Tax System Work in 2026?

South Carolina overhauled its individual income tax beginning with the 2026 tax year. Here’s the structure retirees need to understand:

Tax	South Carolina (2026)
State income tax	1.99% up to $30,000; 5.21% above (with a $966 offset)
Local income tax	None
Property tax (effective rate)	0.49%–0.57%
Sales tax	6% state base; 7.4% combined avg. Groceries and prescriptions exempt from state portion
Estate / inheritance tax	None

The previous top income tax rate was 6.2% in 2025. Unlike Maryland, South Carolina counties do not levy a separate local income tax — a structural difference that compounds the savings for relocating retirees.

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Does South Carolina Tax Social Security?

No. South Carolina fully exempts Social Security benefits from state income tax. If your benefits were included on your federal return, you simply subtract them on your South Carolina return. The same treatment applies to railroad retirement benefits.

This puts South Carolina in the majority of states that protect Social Security from state taxation, and it’s one of the cleanest, most retiree-friendly aspects of the state’s tax code.

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How Are Pensions Taxed in South Carolina?

Pensions are technically subject to South Carolina state income tax, but two stacking deductions often eliminate most or all of the tax for retirees age 65+. Military pensions receive separate, even more generous treatment (covered below).

For non-military pensions, the relevant deductions are:

• The retirement income deduction: $3,000 under 65 / $10,000 at 65+
• The age 65+ deduction: $15,000 per person, against any income

These work together — but with coordination rules that reduce the second by amounts taken under the first. We walk through an example below.

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How Are 401(k), 403(b), and IRA Withdrawals Taxed?

Withdrawals from traditional retirement accounts are taxable in South Carolina but qualify for the same retirement income deduction as pensions:

• 401(k), 403(b), and 457 plans: Withdrawals are taxable; eligible for the retirement income deduction.
• Traditional IRAs: Withdrawals are taxable; eligible for the retirement income deduction.
• Roth IRAs: Qualified withdrawals are tax-free at both the federal and state level.

This is one area where South Carolina is meaningfully more generous than Maryland. Maryland’s pension exclusion does not apply to Traditional IRA withdrawals — a significant gap for retirees whose largest balance sits in a rollover IRA.

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What About Other Retirement Income?

Other income sources are generally taxable, with two exceptions worth flagging:

• Interest from U.S. obligations (Treasury bills, notes, bonds, savings bonds) is exempt from South Carolina tax.
• Net long-term capital gains qualify for a 44% deduction — meaning only 56% of long-term gains are subject to South Carolina tax. This is a significant benefit for retirees drawing from taxable brokerage accounts.

Annuity payments and rental income are generally taxable, though some annuity distributions may qualify for the retirement income deduction depending on the payment structure.

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What Is South Carolina’s Retirement Income Deduction?

South Carolina allows the original owner of a qualified retirement account to deduct retirement income each year:

• Up to $3,000 if the taxpayer is under age 65
• Up to $10,000 beginning in the year the taxpayer reaches age 65

“Retirement income” includes otherwise-taxable distributions (not subject to a premature-distribution penalty) from plans qualified under IRC §§ 401, 403, 408, and 457, as well as public employee retirement plans of federal, state, and local governments — including military retirement. In practice, this covers IRAs, 401(k)s, 403(b)s, governmental pensions, and most private pensions.

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What Is South Carolina’s Age 65+ Deduction?

Beginning in the taxable year a resident reaches age 65, South Carolina allows an additional deduction against any type of South Carolina taxable income:

• Up to $15,000 per spouse age 65 or older
• On a joint return: up to $15,000 if only one spouse is 65+, or up to $30,000 if both spouses are 65+

This deduction is broader than the retirement income deduction because it can offset wages, Roth conversion income, capital gains, rental income, or any other South Carolina taxable income.

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How the Two Deductions Stack — and Where the $30,000 Cap Comes From

The retirement income deduction and the age 65+ deduction work together, but the age 65+ deduction is reduced — on a per-spouse basis — by that spouse’s retirement income deduction. This rule determines how much you actually get to deduct, and it trips up a lot of people.

The Mechanic

1. Each spouse 65+ first claims up to $10,000 under the retirement income deduction.
2. Each spouse then claims up to $15,000 under the age 65+ deduction, minus that same spouse’s retirement income deduction.
3. One spouse’s retirement deduction reduces only that spouse’s age-based deduction — it does not reduce the other spouse’s.

The Practical Result

For a couple where both spouses are 65+ and each has at least $10,000 of qualifying retirement income:

Per spouse	Amount
Retirement income deduction	$10,000
Age 65+ deduction ($15,000 − $10,000)	$5,000
Combined per spouse	$15,000

Joint return total	Amount
Retirement income deductions ($10,000 × 2)	$20,000
Age 65+ deductions ($5,000 × 2)	$10,000
Combined joint total	$30,000

In other words, the maximum combined deduction under these two provisions for a couple where both spouses are 65+ is $30,000 — not $50,000, which is what you might assume by adding the deductions independently.

One important exception: If a deduction is being claimed as a surviving spouse, those surviving-spouse retirement or military retirement amounts do not reduce the $15,000 age 65+ deduction. The surviving-spouse rules are meaningfully more generous than they appear at first glance.

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Example: How the Deductions Stack

Suppose you and your spouse are both 67, living in South Carolina, and in 2026 you receive:

• $30,000 in Social Security benefits
• $25,000 from a pension (paid to you)
• $20,000 from a Traditional IRA (paid to your spouse)

Here’s how the deductions work — applied separately to each spouse:

Step	Description	You	Spouse
1	Qualifying retirement income	$25,000	$20,000
2	Retirement income deduction (capped at $10,000)	−$10,000	−$10,000
3	Age 65+ deduction ($15,000 − $10,000 already used)	−$5,000	−$5,000
4	Remaining SC taxable retirement income	$10,000	$5,000

Joint Total	Amount
Social Security (fully exempt)	$0 taxed
Combined deductions ($20,000 retirement + $10,000 age 65+)	−$30,000
Remaining SC taxable retirement income	$15,000

Of $75,000 in total retirement income, only $15,000 is subject to South Carolina income tax — taxed at the 1.99% / 5.21% bracketed rates under the 2026 structure. Total state tax: roughly $300.

The key insight is the $30,000 combined cap. Even though the deductions appear to total up to $50,000 ($20,000 retirement + $30,000 age-based) when you add them naively, the per-spouse reduction rule limits the combined benefit to $30,000 for a 65+ couple.

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How Does South Carolina Tax Military Retirement?

South Carolina is among the most generous states in the country for military retirees. Two distinct deductions apply:

• Any age: Deduct up to $17,500 of South Carolina earned income, to the extent of military retirement income included in South Carolina taxable income.
• Age 65+: Deduct up to $30,000 of military retirement income directly.

These military-specific deductions coordinate with (and may reduce) the general retirement and age 65+ deductions, but for many military retirees they fully shield military pension income from South Carolina tax.

For comparison, Maryland caps its military pension subtraction at $12,500 for those under age 55, and $20,000 for retirees 55 and older.

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What About Surviving Spouses?

South Carolina allows a surviving spouse receiving retirement income attributable to a deceased spouse to apply the retirement deduction in the same manner the deceased spouse would have. If the surviving spouse also has separate retirement income, an additional retirement exclusion may be allowed. Similar special rules apply to military retirement income received by a surviving spouse.

This matters because surviving spouses often face the widow penalty — higher effective tax rates when filing single after a spouse’s death. South Carolina’s surviving-spouse provisions partially soften that impact at the state level.

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How Are Property Taxes for Retirees in South Carolina?

South Carolina’s low property taxes are one of the biggest reasons retirees relocate there. The statewide effective property tax rate is roughly 0.49% to 0.59% — among the lowest in the country. Primary residences also benefit from a 4% assessment ratio versus 6% for second homes and rental property.

The South Carolina Homestead Exemption

Residents age 65+ qualify for the Homestead Exemption, which excludes the first $50,000 of fair market value of the legal residence from property tax. To qualify, you must:

• Be at least 65 by December 31 of the prior tax year
• Have been a legal South Carolina resident for at least one year
• Hold title to the property as your primary residence

Pending legislation worth tracking: As of early 2026, the South Carolina Senate has advanced S.768, which would triple the homestead exemption from $50,000 to $150,000 for qualifying homeowners. The bill imposes longer residency requirements for new applicants but would significantly expand the exemption for current 65+ homeowners. The legislation has not yet been enacted.

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Does South Carolina Have an Estate or Inheritance Tax?

No. South Carolina has no state estate tax and no inheritance tax. The state eliminated its estate tax for decedents dying after January 1, 2005. South Carolina residents are subject only to the federal estate tax, which has an exemption of $15 million per individual / $30 million for married couples in 2026.

This is a significant advantage relative to Maryland, which is one of only a handful of states that imposes both:

• An estate tax on estates over $5 million, with rates up to 16%
• An inheritance tax of 10% on transfers to non-immediate family members.

For affluent Maryland retirees with estates above the state threshold, relocating to South Carolina can permanently eliminate state-level death taxes.

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Is South Carolina Tax-Friendly for Retirees? Pros and Cons

South Carolina ranks among the most retiree-friendly tax states in the country, though — like any state — it has trade-offs.

Pros:

• No tax on Social Security benefits
• $10,000 retirement income deduction at age 65+ per person
• Additional $15,000 age 65+ deduction against any income per person
• Generous military retirement deductions, including up to $30,000 fully deductible at age 65+
• No estate tax, no inheritance tax
• 44% deduction on net long-term capital gains
• Property tax effective rate among the lowest in the U.S., plus the $50,000 senior homestead exemption
• U.S. Treasury and savings bond interest exempt from state tax
• 2026 income tax cut to a 5.21% top rate, with potential further reductions

Cons:

• Withdrawals from most retirement accounts are still taxable above the deduction caps
• The age 65+ deduction is reduced by amounts taken under the retirement income deduction
• Combined state and local sales tax averages around 7.4%, with some areas reaching 9%
• The 2026 H.4216 reform decoupled South Carolina from federal standard and itemized deductions, replacing them with the new South Carolina Income Adjusted Deduction (SCIAD) — practical impact varies by household

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What Changed Under South Carolina’s 2026 Tax Reform (H.4216)?

While Maryland was raising taxes on higher earners in 2025, South Carolina was moving in the opposite direction. On March 30, 2026, Governor Henry McMaster signed H.4216 into law — the most significant overhaul of South Carolina’s individual income tax in decades.

New Two-Bracket Structure

• 1.99% on taxable income up to $30,000
• 5.21% on taxable income above $30,000 (minus a $966 offset)

This replaced the prior three-bracket system with a 6.2% top rate. According to the South Carolina Department of Revenue, approximately 42.8% of taxpayers will see a reduction in their tax liability under the new structure.

Trigger-Based Future Reductions

The law mandates further rate reductions if the South Carolina Board of Economic Advisors projects revenue collections will increase by 5% or more from the prior fiscal year. Future cuts cannot reduce revenue by more than $200 million in a given year. The Board makes its determination by February 15 each year. The stated goal of supporters is to eventually collapse the brackets into a single low rate.

New Calculation Starting Point

South Carolina now uses federal adjusted gross income (AGI) as the starting point for state tax calculation, rather than federal taxable income. The state has decoupled from the federal standard and itemized deductions and replaced them with the new South Carolina Income Adjusted Deduction (SCIAD), which phases out as income increases. State-specific deductions, including the retirement income and age 65+ deductions, are preserved.

What This Means for Retirees

For most retirees with moderate retirement income, the combined effect of the lower top rate, preserved retirement deductions, and elimination of the prior 6.2% bracket is favorable. Higher-income retirees benefit most directly from the rate reduction. The decoupling from federal itemized deductions matters most for retirees who previously itemized large amounts — those situations require closer review under the new SCIAD rules.

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Should Maryland Retirees Move to South Carolina?

South Carolina has been one of the fastest-growing states for residents age 60 and older, while Maryland has consistently been one of the largest exporters of high-income tax filers. The reasons aren’t hard to identify: South Carolina exempts Social Security, offers stacking retirement deductions, has no estate or inheritance tax, and now has a top income tax rate roughly comparable to Maryland’s state rate alone — before Maryland’s 2.25% to 3.30% local income tax is added on top.

A few practical considerations for Maryland retirees evaluating the move:

1. Establish domicile carefully. Owning a vacation home in South Carolina is not enough. Domicile changes require clear, documented intent to make South Carolina your permanent home — driver’s license, voter registration, vehicle registration, primary care physician, and where you spend the majority of your year all matter.
2. Plan for the partial-year tax return. The year you move, you’ll likely file a partial-year resident return in both Maryland and South Carolina. Coordination is essential to avoid double-taxation of the same income.
3. Don’t forget Maryland’s estate tax. If you maintain Maryland domicile and pass away while still a Maryland resident with an estate above the $5 million threshold, your estate is subject to Maryland estate tax — even if most of your assets are physically in South Carolina.
4. Consider Roth conversion timing. Some Maryland retirees benefit from waiting to do large Roth conversions until after establishing South Carolina residency, where the conversion may face a lower marginal rate and qualify for the age 65+ deduction.
5. Apply for the homestead exemption promptly. Once you’ve been a South Carolina resident for one full calendar year and are 65+, file with your county auditor to claim the $50,000 (or potentially $150,000) homestead exemption.

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Tax Planning Strategies for South Carolina Retirees

Whether you’re a long-time South Carolina resident or a recent transplant, several strategies can help you maximize the state’s favorable retirement tax treatment:

• Time your retirement account withdrawals. Spread distributions across years to stay within the $10,000 retirement income deduction at age 65+ and avoid pushing income into the 5.21% bracket.
• Coordinate the retirement income and age 65+ deductions. Because the age 65+ deduction is reduced by amounts taken under the retirement income deduction, planning the order and source of withdrawals matters.
• Use Roth conversions strategically. Roth conversions are taxable in the year of conversion but generate tax-free withdrawals later. The age 65+ deduction can absorb conversion income, making the post-65 years a particularly favorable conversion window for many South Carolina retirees.
• Use the 44% long-term capital gains deduction. If you’re funding retirement from a taxable brokerage account, holding positions long enough to qualify for long-term capital gains treatment cuts your South Carolina tax on those gains by nearly half.
• File for the homestead exemption. Once eligible, the $50,000 homestead exemption is one of the easiest property tax wins available — but you have to apply through your county auditor’s office.

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What Should You Do Next?

Understanding South Carolina’s taxation of retirement income is the first step. Whether you’re already a South Carolina resident, planning a move from Maryland, or weighing the trade-offs between states, the next steps look similar:

1. Review your current and projected sources of retirement income.
2. Map each source to South Carolina’s deduction structure — retirement income deduction, age 65+ deduction, and (where relevant) military deductions.
3. Plan withdrawal sequencing and Roth conversions to take full advantage of the age-based deductions.
4. If you’re relocating, coordinate the domicile change with your overall tax and estate plan to avoid partial-year and residency pitfalls.
5. Review your situation with a financial advisor familiar with both your origin state and South Carolina’s deduction rules.

At RCS Financial Planning, we work with retirees in Maryland, South Carolina, and across the country to coordinate state tax strategy with broader retirement income planning. As an Annapolis-based fee-only fiduciary firm, we have particular experience helping Maryland retirees evaluate and execute relocations to lower-tax states.

Schedule a complimentary consultation to review how your retirement income would be taxed in your current or future state of residence.