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Subject:  Re: New 2002 Roth Contributions Date:  1/11/2002  3:09 AM
Author:  mplynch Number:  33244 of 88541

We should clarify - Californians can still contribute to the Federal limits. But at this point, it looks like they will not be able to deduct on their state return the increased amount of traditional IRA contributions (or the increases to 401k, 403b, and other qualified plans).

I am interested to know where you got this information and hopeful your source is correct. My understanding of current California law, based on a couple of tax seminars I have attended over the past few days and a bit of research, is that retirement plans that conform to the federal law will be nonconforming to California law, and thus potentially subject to disqualification and penalties.

The law permitting "excess" California contributions (i.e., up to the federal amount) is no longer on the books.

Therefore, although the taxing authorities have indicated they would be loath to disqualify a plan under this scenario, it is how the law reads.

If you are speculating that this (i.e., allow the larger contributions as nondeductible contributions) is how the California legislature will fix the situation, I optimistically agree. Nevertheless, my understanding is that this is not what the law currently states, and one must keep in mind the dire financial situation in which California is.

As I pointed out a dozen or so posts back, there are still 359 days (as of today) for the state legislature to amend their ways. They have made retroactive tax cuts in the past, and will likely do so again in the future. Whether they do this time is anyone's guess.

Assuming my understanding of the current law is correct, the legislature needs to fix this NOW. A year of uncertainty over what will happen is not acceptable, and I do not think we should accept such shoddy work from our representatives.
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