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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 75539  
Subject: Re: No tax law changes for California Date: 1/5/2002 3:57 AM
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I just finished up my annual CA tax update, so thought I'd answer now that I have some good info.

I read today in the paper that California has not adopted the new federal tax law changes.

Correct.

It states that although fed limits for 403 (b) have increased, CA is stuck at $10,500. What does this mean?

A couple of things. 1) The CA legislature is lazy and can't pass timely conformity bills. 2) They still have time to change the law, since the Federal change was effective just a couple of days ago. 3) The paper didn't give you all of the bad news. There are a whole host of things that California has not conformed to in the 2001 federal tax act.

If I increase my deduction (my plan) to the new fed maximum I assume that means I will have to pay State taxes on the portion above $10,500. But what about later on? Later when I start withdrawing in my retirement, will I be taxed again? How can you tell which portion has already had state taxes taken from it? I'm a bit confused. Anyone have any information on this?

Most likely, it would be treated like non-deductible IRA's are at the Fed level. A portion of your withdrawls would not be taxable for California. You are correct that you would have to make a current adjustment for your wages, as the last $500 of your retirement contributions would be taxable to California.

My best guess is not to worry too much just yet. Since conforming to the Federal rules would be a tax cut, the legislature won't worry too much about making their changes retroactive. Keep your eyes open, and you'll probably hear about a conformity bill making it's way through Sacramento this spring or summer. Hopefully, they'll get their act together and make everyone life a little less taxing. ;-)

--Peter
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