IRA CONTRIBUTIONS

California generally conforms to IRC §219 under which a deduction is allowed for a contribution made by or on behalf of an individual to an IRA subject to several limitations.

However, because California only conforms to IRC §219 as of California’s current January 1, 2015, conformity date, California does not conform to:
• The federal SECURE Act change that allows individuals age 70½ or older to make deductible contributions to a traditional IRA, applicable to contributions made for taxable years beginning after December 31, 2019;
• The SECURE 2.0 Act provision that indexes IRA $1,000 catch-up limits for inflation for taxpayers ages 50 and older for post-2023 tax years;
• The SECURE 2.0 provision that increases the SIMPLE plan employee contribution maximum contributions and catch-up contributions by 10% for post-2023 taxable years.

California taxpayers who are age 70½ or older and who make federally deductible contributions to an IRA on their post-2019 tax year federal returns will have to make an adjustment to remove the deduction on their California return. Similarly, taxpayers who make increased deductible catch-up contributions to their IRA or SIMPLE IRAs in post-2023 tax years will also have to make a California adjustment to remove the deduction on their California return.

Background:

When you put money into a Traditional IRA, you can usually deduct that contribution from your income to lower your taxes. The IRS (federal government) has rules for this, and California generally follows them — but not all the newest updates.

What’s the issue?

California’s tax laws are out of date compared to federal law when it comes to some IRA rules. The state only follows federal rules as they were on January 1, 2015. So, when new federal laws came out after that (like the SECURE Act and SECURE 2.0 Act), California did not adopt them.

Three key differences:

1. People over 70½ years old:
   • Federal law lets them still deduct IRA contributions.
   • California does not allow that.
     → So if you’re over 70½ and deduct an IRA contribution on your federal return, you have to add it back (make it taxable again) on your California return.
2. Catch-up contributions for people 50+:
   • Federal law increases how much older people can contribute.
   • California doesn’t recognize those increases yet.
     → So the extra part of the contribution won’t be deductible in California.
3. Higher SIMPLE IRA limits:
   • Federal law increases the max contributions starting in 2024.
   • California doesn’t allow that increase either.
     → Again, you’ll need to adjust your California return.

What you need to do:

If you take a deduction on your federal return that California doesn’t allow:

• You must add that amount back when filing your California return.
• This is done on Schedule CA (540), line 20.

Example:

Mike is 75 and puts $2,000 into an IRA in 2024.

• He deducts this $2,000 on his federal return.
• But since he’s over 70½, California doesn’t allow that deduction.
• So he has to add $2,000 back to his income on his California tax return (which means he pays California tax on it).
• However, that $2,000 becomes part of his California basis in the IRA. This means later, when he withdraws that money, California won’t tax it again.

Navigating the differences between federal and California tax laws can be confusing — especially when it comes to retirement planning and IRA deductions. If you’re unsure how these rules apply to your situation, we’re here to help.

Contact Velin & Associates, Inc. today:

📞 323-902-1000
📧 dmitriy@losangelescpa.org
🌐 www.losangelescpa.org

Let us help you stay compliant and maximize your tax advantages.