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Dear Brass Tax Presentations,
We are having some confusion over the following topic and were wondering if you could provide some guidance…
Does California conform to the IRS regulation allowing for a $1,000 IRA catch-up contribution deduction for taxpayers who are 50 years old or older? Their website says yes, but according to our tax software, Lacerte, they are not allowing it, and the program is making a $1,000 income adjustment.
I challenged Lacerte about this, and they replied with the following:
After a review of the file, program change was made based on instructions for California publication 1005. Per publication 1005 instructions, “For taxable years beginning on or after January 1, 2024, the CAA, 2023, provides for the indexing for the $1,000 catch-up contribution to an IRA for individuals age 50 or older. The CAA, 2023, also increases certain contribution amounts, including catch-up contributions for individuals age 50 or over, as defined in IRC Section 414(v). California law does not conform to these federal provisions. If the amount reported on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, Section C, line 20, column A, is more than the amount allowed for California, enter the difference between the amount deducted for federal purposes and the deduction amount allowed for California on Section C, line 20, column B.” Therefore in the 2024 program, $1,000 of catch-up IRA contribution is disallowed for individuals age 50 or older on Schedule CA, Page 3, line 20. If you disagree with the automatic calculation and want to override, then make an entry of -1 in “IRA Deduction Subtraction – Taxpayer”
Lacerte is saying that CA does not conform at all. But my office understood this to mean CA did not conform only to the new indexing rule taking place. We believe the total IRA contribution deduction for both Fed and CA should be $7K + $1K catch-up = $8K for taxpayers 50 years old and older.
IRA deduction | FTB.ca.gov Here is the website allowing the full amount.
We appreciate any help you can provide. Thank you!
From Brass Tax Presentations
You are correct that the catch-up contribution is still allowed for CA taxpayers. Here is a response you can send to Lacerte that has the references to show that, while we don’t conform to the indexing provision, we still conform to the catch-up contributions:
It has come to our attention that the program is disallowing deductible catch-up contributions for California taxpayers age 50 or older making contributions into IRA accounts. While it is true that California does not conform to the CAA provision indexing the IRA catch-up contribution amount, there has been no change to conformity for catch-up contributions generally.
CA currently conforms to federal law as of the specified date of January 1, 2015 (RTC Section 17201(b)), with the modification that any references to “compensation” or “earned income” for purposes of computing federal limitations on the deductions for qualified retirement contributions, shall also apply to California for the same taxable year. (RTC section 17203.)[1]
Without additional action, California will not automatically conform to the indexing provision, but per the FTB website as well as the draft Publication 1005, California taxpayers age 50 or older may still make a catch-up contribution of $1,000.
https://www.ftb.ca.gov/file/personal/deductions/ira-deduction.html
[1] Details of Public Law 117-328, section 108: https://www.ftb.ca.gov/about-ftb/data-reports-plans/Summary-of-Federal-Income-Tax-Changes/index.html#PL-117-328-108