South Carolina Doesn’t Tax Social Security and Exempts the First $15,000 of a Retiree’s 401(k) Withdrawals After 65. North Carolina Taxes Every Dollar of the Same Withdrawal at 3.99%, and the Two States Share a 335-Mile Border
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Head south on I-77 out of Charlotte and you cross a state line that changes how your 401(k) gets taxed. North Carolina and South Carolina share a border of about 335 miles. Once you’re 65, the two states treat the same retirement withdrawal very differently.
Social Security is tax-free in both states. The real difference is the 401(k) check. South Carolina exempts the first $15,000 a year after 65. North Carolina taxes every dollar of it. For a typical retiree that gap is worth more than $1,000 a year, and above a certain withdrawal size it flips the other way.
How South Carolina Shields $15,000 of Withdrawals After 65
South Carolina combines two senior breaks. The retirement income deduction lets you subtract up to $10,000 of qualifying retirement income a year once you reach 65. The age 65 deduction adds $15,000 against any South Carolina income, minus whatever you already took under the retirement deduction.
Add them together and each person gets $15,000 in total. If you and your spouse are both 65 or older, the joint cap is $30,000. On top of that, South Carolina exempts any Social Security that’s taxable on your federal return (per the state revenue department).
Rates fell this year, too. Under H. 4216, signed March 30, 2026, income under $30,000 is taxed at 1.99%. Income of $30,000 or more is taxed at 5.21%, minus $966. The new rates start with the 2026 tax year, so they apply to returns due April 15, 2027.
North Carolina Taxes Every 401(k) Dollar at 3.99%
North Carolina’s flat individual rate for 2026 is 3.99%. Social Security is exempt there too (per state guidance summarized by local outlets). The difference is that North Carolina has no age-based deduction for retirement income. Withdrawals from a traditional 401(k) or IRA are fully taxable. The main exception is the Bailey settlement, which protects certain long-serving government retirees.
Your federal bill is the same on either side of the line. Federal law treats 401(k) payouts as ordinary income (26 U.S.C. § 72), reported on line 5b of Form 1040. It also makes up to 85% of Social Security taxable under 26 U.S.C. § 86(a)(2). The state bill is the only part that changes.
A $50,000 Withdrawal Costs $1,137 Less in South Carolina
Here are the assumptions. You’re single, 67, and filing for 2026. You take $50,000 from a traditional 401(k) and collect Social Security equal to the average retired-worker benefit of $2,095 a month. Every filer in both states also gets a general standard deduction. That includes South Carolina’s new $15,000 deduction for single filers, which shrinks as income rises. We leave those aside so the comparison focuses on the retirement break.
| Single filer, age 67 | North Carolina | South Carolina |
|---|---|---|
| 401(k) withdrawal | $50,000 | $50,000 |
| Senior retirement deduction | $0 | $15,000 |
| Taxable withdrawal | $50,000 | $35,000 |
| State tax on Social Security | $0 | $0 |
| State tax on withdrawal | $1,995 | $857.50 |
South Carolina comes out $1,137.50 cheaper. Without the senior deduction, South Carolina would charge $1,639, which is still less than North Carolina at this income. The $15,000 deduction is what makes the gap big.
Married and both 65 or older? Take an $80,000 joint withdrawal. North Carolina charges $3,192. South Carolina exempts $30,000 and charges $1,639, a gap of $1,553 a year.
Above Roughly $143,000 in Withdrawals, North Carolina Wins
South Carolina’s 5.21% top rate is higher than North Carolina’s flat 3.99%. The $15,000 head start shrinks with every extra dollar you take. Using the same assumptions, a single filer breaks even at about $143,238 of withdrawals. Above that, North Carolina costs less. Retirees facing big required minimum distributions or large Roth conversions should run this math before they move (the first RMD year is where a big pre-tax balance really stings, which is the whole subject of our free first-year tax bomb guide).
Both rates could change. South Carolina’s law cuts its top rate further whenever state economists project revenue growth of 5% or more. That decision comes by February 15 each year. North Carolina voters will decide on a constitutional amendment lowering the state’s income tax rate cap from 7% to 3.5%.
Three Moves Before You Pick a Side of the Line
- Size your traditional balances. Moderate annual withdrawals favor South Carolina. Very large distributions narrow the gap or reverse it.
- Use the deduction every year. It resets each January. A couple who spreads withdrawals evenly can shelter $30,000 of 401(k) income every year in South Carolina instead of piling it into one tax year.
- Get the move date right. A mid-year move usually means filing part-year returns in both states. Each state taxes the income you made while you lived there.
Taxes are only part of the cost. The federal government’s 2024 cost-of-living index places South Carolina at 93.749 and North Carolina at 94.326, so day-to-day prices are close. For a retiree living mostly on 401(k) withdrawals, a CPA can run both state returns side by side before the moving truck shows up.
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Vilma Rios is a tax professional, tax researcher, and financial writer with more than 15 years of experience in tax and accounting. Her work spans federal tax research, financial journalism, retirement planning, investment taxation, capital gains, inherited assets, and tax education. She specializes in translating complex tax and financial topics into clear, practical information that helps individuals, families, retirees, and investors make informed decisions.
She has presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as "Your Tax Geek," Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
