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State Tax Withholding on IRA and 401(k) Withdrawals in North Carolina (2026)

Updated October 7, 2026. Quick answer: Yes, 4%, unless you opt out. Form NC-4P says “Your payer must withhold a flat 4% from a nonperiodic distribution” unless you choose not to have State income tax withheld, and “Distributions from an IRA that are payable on demand” are treated as nonperiodic.

Drawing a pension? Whether the state withholds tax from it, from its own documents: North Carolina tax withholding on pension payments.

North Carolina withholding at a glance

ItemWhat the documents say
Is it required?Yes for a North Carolina resident, unless the payee elects not to have tax withheld
Rate or amountA flat 4% of a nonperiodic distribution; periodic payments are withheld like wages
How to start or stop itForm NC-4P, given to the payer; check the line 1 box for no withholding; the election applies distribution by distribution for nonperiodic payments
Direct rolloverNot required on a distribution paid in a direct rollover to an eligible retirement plan, including an IRA
Changed for 2026?No change stated; the form read is dated 10-23

What the North Carolina documents say

The Department of Revenue’s Directive PD-00-2 says that if a payee has given a North Carolina address to a pension payer, the payee is presumed to be a resident and the payer must withhold “unless the payee elects not to have tax withheld”. The directive cites G.S. 105-163.1 and G.S. 105-163.2A.

Form NC-4P sets the rate for one-time payments: “Your payer must withhold a flat 4% from a nonperiodic distribution” unless you choose not to. It says an election to skip withholding on a nonperiodic distribution applies on a distribution by distribution basis, and that the payer must tell you each year of your right to choose.

A $50,000 withdrawal: cash in hand or a direct rollover

Take a $50,000 401(k) withdrawal paid to you. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. North Carolina withholds a flat 4% on the one-time distribution: $2,000 (computed as $50,000 times 4%). The form says that if the distribution is an eligible rollover distribution, the recipient cannot elect out of the withholding.

The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. North Carolina agrees on the state side: the form says state tax withheld is not required on a “distribution paid in a direct rollover to an eligible retirement plan”, including an IRA.

What a mover should know

This page is about North Carolina as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it, and state withholding on retirement withdrawals lists the other states checked.

What the documents do not say

  • The form read is dated 10-23 and the directive dates from 2000; the documents read state no change for 2026.

Common mistakes

  • Checking the no-withholding box on one distribution and assuming it carries to the next; the form says the election is distribution by distribution.
  • Expecting to opt out of the 4% on an eligible rollover distribution paid to you; the form says the recipient cannot.
  • Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.

Related: state withholding on retirement withdrawals, how North Carolina taxes 401(k) and IRA withdrawals, North Carolina retirement taxes, and retirement withholding calculator.

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Sources

Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.

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