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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75639  
Subject: Re: NonConforming States to New Fed. Cont. Limit Date: 1/23/2002 6:42 PM
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I agree that there's more hype than substance here. Back in the early 80's California took several years to come into conformity on the IRA limits. They were stuck at $1500 while the Feds allowed a $2000 contribution. The solution was (and still is) pretty simple. For California purposes, when you take withdawls from your IRA, you recover that "excess" amount out of your IRA without California tax until you've used it up. Once you have recovered all of those old contributions, your Federal and California treatment becomes the same.

My point is that people still contributed to their IRA's based on the Federal laws, then made the appropriate adjustments at the state level. While this year's changes are more wide-spread, covering almost all types of retirement plans, there are ways to deal with the differences at the state level. For the most part, they will mean that you would pay more state tax than you would if California conformed to Federal law (an issue which is not lost on the state legislature in a year with budget problems).

--Peter
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