Updated October 4, 2026. Quick answer: Yes. North Carolina taxes traditional 401(k) and IRA withdrawals as ordinary income, at 3.99% for 2026. The D-401 instructions say federal adjusted gross income is the starting point: “North Carolina taxable income is federal adjusted gross income”. Its retirement deductions are for Bailey settlement retirees and uniformed services retirement pay.
State retirement-income forms, line by line: North Carolina Schedule S.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: North Carolina tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does North Carolina tax 403(b) and 457(b) withdrawals.
Withdrawing from an IRA or 401(k)? Whether the state withholds tax from it, from its own documents: North Carolina tax withholding on IRA and 401(k) withdrawals.
Taking money out of your TSP? How the state taxes it, from its own tax documents: Does North Carolina tax TSP withdrawals?.
Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does North Carolina have an inheritance tax?.
What North Carolina does with 401(k) and IRA withdrawals
For 2025 the instructions say “For tax year 2025, the individual income tax rate is 4.25%” For later years the Department’s rate page says “the North Carolina individual income tax rate is 3.99% (0.0399)”.
| Item | What the documents say |
|---|---|
| Treatment | Taxable; retirement deductions exist for the Bailey settlement and uniformed-services retirement |
| State rate | 4.25% for 2025, 3.99% for 2026 |
| Source | North Carolina Department of Revenue, 2025 D-401 instructions and rate schedule page |
A $40,000 withdrawal
A $40,000 withdrawal adds $1,596 of North Carolina tax at the 2026 rate (computed as $40,000 times 3.99%), before deductions. At the 2025 rate of 4.25% the same withdrawal adds $1,700.
What changes in 2026
The rate falls from 4.25% to 3.99% for 2026, per the Department’s rate schedule page.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.
Related: whether North Carolina taxes pensions, how North Carolina taxes retirement income, whether North Carolina taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- North Carolina Individual Income Tax Instructions, Form D-401 (2025): https://www.ncdor.gov/2025-d-401-individual-income-tax-instructions/open
- Tax Rate Schedules: https://www.ncdor.gov/taxes-forms/individual-income-tax/tax-rate-schedules
- G.S. 105-153.7 Individual income tax imposed: https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-153.7.html
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.