California’s New Retirement Contribution Deduction Conformity: What It Means for You

If you’re a professional in Los Angeles — whether a doctor, dentist, freelancer, e-commerce creator, or high-net-worth individual — here’s a major update you should know: California has passed SB 711, which changes the date at which the state conforms to many federal retirement plan contribution rules.

This affects how much you can deduct for retirement contributions on your California return, how your IRA basis works, and how you should plan your contributions and withdrawals going forward.

🔹 What Changed?

• Before SB 711, California’s “specified date” for conforming to the federal Internal Revenue Code (IRC) was January 1, 2015.
  This meant many federal retirement contribution rules enacted after that date didn’t apply for California tax purposes.
  ⠀
• SB 711 moves that date to January 1, 2025, for taxable years beginning on or after that date.
  In essence, for California tax years 2025 and later, many federal rules will now be recognized by California.
  ⠀
• This means that for tax year 2025 (and beyond), California will now conform to federal rules such as:
  • Allowing individuals age 70½ and older to make deductible IRA contributions.
  • Permitting increased “catch-up” contributions for those age 50+ and enhanced limits for ages 60–63.
  • Indexing contribution limits for inflation to match federal law.

⚠️ Basis Tracking Still Matters

For contributions made before 2025, the old non-conformity rules still apply.

If you deducted a retirement contribution on your federal return but couldn’t deduct it on your California return, that contribution increases your California basis.

When you eventually withdraw from your IRA, this basis reduces the taxable portion of your income for California — but not for federal taxes.

Example 1 – High-Earning Physician in Los Angeles

If you’re a doctor in Los Angeles (age 71) who made $7,000 of IRA contributions in 2020, 2021, and 2022, and $8,000 in 2024, these contributions would have been deductible federally.

However, because California did not allow deductible IRA contributions for individuals age 70½ and older before 2025, your California basis — the portion not deducted previously — totals $29,000.

If you withdraw $25,000 from your IRA in 2025, the entire amount is taxable federally, but for California tax purposes, you can use part of your $29,000 basis to reduce or eliminate the taxable portion of that distribution.

Example 2 – Freelance Creator with Catch-Up Contributions

If you’re a freelance YouTuber or content creator in Los Angeles (age 52) who made extra “catch-up” contributions to a 401(k) or SIMPLE IRA in 2024 under federal rules, those additional contributions were not deductible on your California return at that time.

Starting in 2025, with SB 711, California will now conform to the federal enhanced catch-up contribution limits.

However, you’ll still need to track the 2024 non-deductible portion separately, since it creates additional California basis that can reduce taxable income when you take future withdrawals.

🧾 What You Should Do Now

1. Track your basis differences
   If you made retirement plan or IRA contributions in California for years prior to 2025 that were deductible federally but not for California, you likely have basis to track.
   Use federal Form 8606 (Nondeductible IRAs) or similar records to make sure your California basis is properly documented.
   ⠀
2. Review your contribution strategy for 2025 and beyond
   Since California will conform beginning January 1, 2025, this is the time to review:

• Whether to increase your contributions under the new conformity rules.
• Whether you qualify for increased catch-up contributions (age 50+ or 60–63 enhancements).
• Whether your California return will properly reflect these changes.

3. Consider timing and planning

• If you’re doing year-end planning (freelancers, creators, business owners), consider whether to make extra contributions before year-end.
• If you expect a large retirement distribution soon, your pre-2025 California basis may help reduce taxable income.

4. Consult a tax professional experienced in California vs. Federal differences
   The rules are technical, and mismatches between federal and California tax law can create costly surprises.

At Velin & Associates, Inc., we specialize in California and federal tax planning for:
📊 High-earning professionals
🎥 Creators and YouTubers
🦷 Dentists and medical practices
🛍️ E-commerce and online business owners
💼 High-net-worth individuals

🏁 Final Takeaway

Thanks to SB 711, many of the headaches tax professionals faced when California lagged behind federal retirement rules are now greatly reduced — but not entirely eliminated.

If you’re a professional or business owner in Los Angeles, now is the time to review how your retirement contributions, IRA basis, and future distributions will be affected under the new California conformity landscape.

📞 Need Help?

At Velin & Associates, Inc., our Los Angeles CPA team is ready to help you navigate:

• California vs. Federal retirement deduction differences
• Tracking IRA basis for California
• Pre-2025 contribution cleanup and post-2025 strategy
• Tailored planning for professionals and creators

For more information about our services, please visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

Contact us today to schedule your consultation and ensure your 2025 retirement strategy aligns with both federal and California tax law.

CPA Los Angeles | Accountant Los Angeles | Tax Planning Los Angeles | California Retirement Contribution Deduction | California Tax Conformity | Los Angeles Tax Advisor | CPA for YouTubers | CPA for Shopify Store | CPA for Online Commerce | CPA for Creators | Shopify Store CPA | CPA for Filmmakers | CPA for Amazon Business | Amazon Business CPA | CPA for Dental Practice | Dentist CPA | Dental Business CPA | Online Commerce CPA | CPA for TikTokers | CPA for Doctors | CPA for Medical Practice | CPA for High Net Worth Individuals