State guide
Does North Carolina tax retirement income? IRAs, Roth conversions and Social Security (2026)
By Secure Retirement PlannerUpdated
If you retire in North Carolina, Social Security is not taxed, but most pensions and IRA withdrawals are taxed at 3.99% for 2026. Your Roth conversion is taxed the same way, at the flat 3.99% rate. That is down from 4.25% in 2025, so a $50,000 conversion adds about $1,995 in state tax.
There is one big exception you should check first. Are you a retiree covered by the Bailey settlement? Then you can roll money from a qualifying Bailey plan into a Roth with no North Carolina tax. Do it in the wrong order and you can lose that break.
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The short version
- North Carolina taxes your conversion at 3.99% in 2026, about $399 per $10,000 you convert.
- The rate dropped from 4.25% in 2025, so converting costs you a little less in NC this year than last.
- If you roll straight from a qualifying Bailey plan to a Roth, your rollover is exempt from NC tax.
- If your Bailey money goes into an IRA first, it loses its exempt status.
- North Carolina does not tax your Social Security.
Does North Carolina tax retirement income?
Partly. North Carolina does not tax your Social Security. Most pensions, IRA and 401(k) withdrawals and Roth conversions are taxed at the flat 3.99% rate for 2026. The big exception is for Bailey retirees, who had five years of government service by August 12, 1989.
| Income type | Taxed by North Carolina in 2026? | Notes |
|---|---|---|
| Social Security | No | Deducted on Schedule S |
| Public pensions | Depends | Exempt if you qualify under Bailey. Otherwise taxed at 3.99% |
| Private pensions | Yes | 3.99%, with no general NC deduction for retirement income |
| IRA and 401(k) withdrawals | Yes | 3.99%. Bailey 401(k) and 457 money can be exempt |
| Roth conversions | Yes, with one exception | A direct rollover from a qualifying Bailey account to a Roth is exempt |
Does North Carolina tax a Roth conversion?
Yes. North Carolina starts with your federal adjusted gross income, and that includes your conversion. There's no general NC deduction for IRA or 401(k) income. So your conversion is taxed at the state's flat rate.
The state revenue department says the rate is 4.25% for 2025 and 3.99% for tax years after 2025. That comes from Session Law 2023-134. The department notes more cuts may apply starting in 2027, based on revenue triggers in that law.
Your NC standard deduction is $25,500 if you are married filing jointly and $12,750 if you are single. Unlike the federal one, you get no extra amount for being 65 or older.
| Tax year | NC rate | State tax on a $50,000 conversion |
|---|---|---|
| 2024 | 4.50% | about $2,250 |
| 2025 | 4.25% | about $2,125 |
| 2026 | 3.99% | about $1,995 |
How does the Bailey settlement affect a Roth conversion?
A court case, Bailey v. State of North Carolina, means NC can't tax certain retirement benefits. It protects some retirees of North Carolina state and local government and of the U.S. government, including the military. It applies to plans such as TSERS, LGERS, FERS and CSRS. You need five or more years of service credit as of August 12, 1989.
It also covers the state's 401(k) and 457 plans if you put money in, or signed up to, before August 12, 1989.
For Roth moves, the state revenue department says this. If you roll to a Roth straight from a qualifying Bailey account, the rollover is exempt from NC tax. You deduct it on your state return, to the extent it was in your federal income. You claim it on Form D-400 Schedule S and attach your 1099-R.
Watch the order of the moves
The state says Bailey money rolled into another plan loses its exempt status, unless that plan is also a qualifying Bailey account. So if you roll a Bailey 401(k) into a traditional IRA first and then convert, your conversion can be NC-taxable. A direct rollover from the Bailey plan to a Roth is the route the department describes as exempt.
Who doesn't get the Bailey exclusion?
The break doesn't cover retirees of other states and their local governments, such as former teachers. Say you retired as a teacher in Virginia and moved to Charlotte. You pay NC tax on a conversion like anyone else.
For the pension plans, you needed five years of service credit by August 12, 1989. If you were hired after about August 1984, you generally don't qualify through those plans. If you aren't sure you're vested for Bailey, ask your retirement system and an NC-licensed tax preparer.
Does North Carolina tax Social Security, and do I need estimated payments?
North Carolina doesn't tax your Social Security or Railroad Retirement Act benefits. If they're in your federal income, you deduct them on Schedule S of Form D-400.
NC requires you to pay estimated tax if the tax due on your return will be $1,000 or more after withholding and credits. A $50,000 conversion adds about $1,995. So if you convert, you may cross that line unless you raise your withholding.
The state says its 2026 forms and instructions will be out in January 2027. Its 2026 estimator worksheet uses the 3.99% rate.
What if I move into or out of North Carolina in 2026?
If you live in NC for part of the year, you file Form D-400 with Schedule PN. North Carolina taxes the income you got while you lived there. It figures your tax using a taxable percentage.
If you're leaving for a state with no income tax, converting after you move generally keeps your conversion out of NC. Federal law (4 U.S.C. 114) bars states from taxing IRA and plan income of people who no longer live there. See Florida for the move-first approach.
Federal tax still applies wherever you live. See Tax on a Roth conversion for how a conversion fits into your federal brackets.
Example: two Raleigh couples converting $50,000
Both couples file jointly, are under 65 and have $75,000 of other income. Each converts $50,000 in 2026. Each couple's federal taxable income goes from $42,800 to $92,800, all in the 12% bracket. That adds about $6,000 in federal tax.
Couple A converts a traditional IRA built from private-sector 401(k) rollovers. North Carolina adds 3.99% of $50,000, about $1,995.
Couple B: one spouse is a retired state worker with more than five years of service in 1989. She put money in the NC 401(k) before August 12, 1989. They roll $50,000 straight from that NC 401(k) to a Roth IRA. Under the Bailey rule, North Carolina adds nothing.
What this means for you: if you have Bailey money, the order of your moves can decide whether you owe NC tax at all.
| Couple | Federal tax | NC tax | Total |
|---|---|---|---|
| A: traditional IRA conversion | about $6,000 | about $1,995 | about $7,995 |
| B: Bailey NC 401(k) direct to Roth | about $6,000 | $0 | about $6,000 |
| B, if first rolled to an IRA, then converted | about $6,000 | about $1,995 | about $7,995 |
Hypothetical example. Assumes married filing jointly, both under 65, no Social Security, $75,000 of other income that is NC-taxable, the 2026 federal standard deduction ($32,200) and 2026 brackets (IRS Rev. Proc. 2025-32), and NC's 3.99% rate for 2026. Bailey eligibility depends on your own service history and plan; confirm it before relying on the exemption. Your numbers will differ.
Common questions
What is North Carolina's income tax rate for 2026?
3.99%. The state says the rate is 4.25% for 2025 and 3.99% for tax years after 2025, under Session Law 2023-134.
Does North Carolina tax Roth conversions?
Yes, at the flat 3.99% rate for 2026, unless your money comes straight from a qualifying Bailey retirement account.
Can a Bailey retiree convert to a Roth tax-free in NC?
If you roll to a Roth from a qualifying Bailey account, it is exempt from NC tax and you deduct it on Schedule S. If your Bailey money goes into a non-Bailey IRA first, it loses that status.
Does North Carolina tax Social Security?
No. You deduct the taxable Social Security in your federal income on Form D-400 Schedule S.
Does North Carolina give a bigger standard deduction at 65?
No. Your NC standard deduction is $25,500 if you file jointly, with no extra amount for age 65 or blindness.
Do I need to make NC estimated payments for a conversion?
If your NC tax due after withholding and credits will be $1,000 or more, you must make estimated payments. You can also cover it with extra withholding.
Sources
Facts on this page were last checked on November 9, 2026.
- NCDOR, Tax Rate Schedules · 4.25% for 2025, 3.99% after 2025, prior years. Read Nov 9, 2026.
- NCDOR, Bailey Decision Concerning Federal, State and Local Retirement Benefits · Bailey eligibility, rollover character, Roth rollover exemption. Read Nov 9, 2026.
- NCDOR, Social Security and Railroad Retirement Benefits · Social Security deduction on Schedule S. Read Nov 9, 2026.
- NCDOR, NC Standard Deduction or NC Itemized Deductions · Standard deduction amounts, no age 65 add-on. Read Nov 9, 2026.
- NCDOR, 2025 D-401 Individual Income Tax Instructions · Part-year residents (Schedule PN) and $1,000 estimated tax rule. Read Nov 9, 2026.
- NCDOR, 2026 Individual Income Tax Estimator Worksheet · 2026 rate of 3.99% used for estimates; 2026 forms due January 2027. Read Nov 9, 2026.
- IRS Rev. Proc. 2025-32 (2026 inflation adjustments) · 2026 federal brackets and standard deduction. Read Nov 9, 2026.
Who wrote this
This guide was written and fact-checked by the Secure Retirement Planner editorial team using IRS, CMS and Social Security sources listed above. We update guides when the law or yearly limits change. How we research.