Does converting an IRA to a Roth IRA have South Carolina income tax consequences?
A. In general, taxpayers with adjusted gross income of $100,000 or less may convert an IRA to a Roth IRA. For federal purposes, the amount is reported on federal Form 8606 (Nondeductible IRAs) and included in gross income. Since South Carolina adopts federal taxable income as the starting point for South Carolina income tax purposes and there is no provision to make South Carolina adjustments for IRA conversions, the conversion amount is also taxable for South Carolina purposes. South Carolina does allow an annual deduction of up to $3,000 until age 65 for taxable retirement income received from qualified retirements plans that is not subject to a penalty for premature distributions. (See the “Information for Seniors/Retirees” Section below for more information on the retirement deduction.
