Does California conform to the Secure Act 2.0 changes?

May 15, 2024

It’s difficult to give a simple yes or no answer because California conformity issues are complex. This is especially true when it comes to retirement plans and savings issues. 

The general rule is that California only conforms to federal law as it was in effect on a specified date, which is currency currently January 1, 2015. This means that, unless California updates the conformity date or enacts a law incorporating a post-2014 federal law change, California will not conform to SECURE Act 2.0 changes.

A major exception to this rule centers on retirement plans. California automatically conforms to any federal law change governing retirement plans as they relate to minimum funding standards and benefit limitations.

This means if a retirement plan is a qualified plan for federal purposes, it is considered a qualified plan for California. Examples of these plan qualification provisions include the required minimum distribution (RMD) issues:

  • The age taxpayers must begin taking RMDs
  • The rules governing the period in which inherited IRAs have to be distributed.

California automatically conforms to the changes to these provisions, Roth IRA treatment under IRC Sec. 408, and changes made to the premature distribution penalty imposed under IRC Sec. 72.

This means if a distribution is exempt from the federal 10% premature distribution penalty, it’s also exempt from California’s 2.5% premature distribution penalty.

Although California automatically conforms to retirement plan qualification provisions, California does not conform to provisions that address whether contributions are deductible or distributions are exempt. 

The rule of thumb is that California only conforms to these tax provisions as of California’s specified date, which is January 1, 2015 for deductible contributions and January 1, 2010 for elective deferrals.

So California conforms to all plan changes. But changes in the dollar limitation on the exclusion from wages increased deductions from income do not automatically apply.

When California doesn’t conform to these federally increased amounts, the law is clear about a few points:

  • Plans that are amended to conform to the federal limits will not be disqualified for CA purposes
  • Retirement contributions (up to the federal limits) will only be included in the recipient’s California income to the extent of the excess over the CA contribution limit. Your California basis will be increased accordingly.
  • Earnings on any excess distributions will not be currently reportable income for California purposes. Earnings will only be taxable when they are distributed.

This means California does not currently conform to the SECURE Act 2.0 increased deductible IRA and qualified plan contribution limits. If California doesn’t enact conforming legislation, you will only be able to  claim deductions for pre-SECURE 2.0 Act deductible contribution amounts on your California return.