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California Free Printable 2023 FTB Publication 1005, Pension and Annuity Guidelines for 2024 California Pension and Annuity Guidelines

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Pension and Annuity Guidelines
2023 FTB Publication 1005, Pension and Annuity Guidelines

1005 FTB Publication 2023 Pension and Annuity Guidelines Table of Contents What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Important Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Common Terms Used in this Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figuring Your ­California Pension, Annuity, and IRA Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Social Security and Railroad Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Three-Year Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ­California Residents Receiving an Out-of-State Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Nonresidents of California Receiving a California Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Individual Retirement Arrangements (IRAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6   IRA Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6   IRA Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7   Coverdell Education Savings Accounts (ESAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   Expanded Use of IRC Section 529 Accounts Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   Archer Medical Savings Accounts (MSAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   Health Savings Accounts (HSAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   California Achieving a Better Life Experience (ABLE) Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   Roth IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10   Roth IRA Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Simplified Employee Pension (SEP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Self-Employed Retirement Plans (Keoghs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Lump-Sum Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Change in Residency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Tax on Early Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Basis Worksheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 General Phone Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ONLINE SERVICES Go to ftb.ca.gov for: • MyFTB – view payments, balance due, and withholding information. • Web Pay – pay income taxes. Choose your payment date up to one year in advance. • CalFile – e-file your personal income tax return. Page 2  FTB Pub. 1005  2023 • Refund Status – find out when we authorized your refund. • Installment Agreement – request to make monthly payments. • Subscription Services – sign up to receive emails on a variety of tax topics. • Tax forms and publications. • FTB legal notices, rulings, and regulations. • FTB’s analysis of pending legislation. • Internal procedure manuals to learn how we administer law. 2023 Pension and Annuity Guidelines What’s New Federal Consolidated Appropriations Act (CAA), 2023 – The CAA, 2023, was enacted on December 29, 2022, and it includes the federal Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022. In general, California Revenue and Taxation Code (R&TC) conforms to the changes to the retirement provisions under the SECURE 2.0 Act. For more general information, refer to the federal act and California R&TC. General Information California law conforms to certain provisions of the Internal Revenue Code (IRC) related to pension plans and deferred compensation, including amendments to the IRC that may be enacted in the future. SECURE Act – The federal SECURE Act was enacted on December 20, 2019. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. California law does not conform to the federal provision that repealed the maximum age of 70½ for traditional individual retirement arrangement (IRA) contributions. For more information, refer to the federal act and California R&TC. Coronavirus Aid, Relief, and Economic Security (CARES) Act – The federal CARES Act was enacted on March 27, 2020. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. For more information, refer to the federal act and California R&TC. Consolidated Appropriations Act (CAA), 2021 –The federal CAA, 2021, was enacted on December 27, 2020. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. California law does not conform to the federal provision that allows disaster-related plan loans for qualified individuals. California law conforms to the federal provision that amends the minimum age for certain multiemployer plans for individuals who were participants in the plan on or before April 30, 2013, and for distributions made before, on, or after December 27, 2020. For more information, refer to the federal act and California R&TC. American Rescue Plan Act (ARPA) of 2021 – The federal ARPA of 2021 was enacted on March 11, 2021. In general, California law conforms to the changes to the retirement provisions under the ARPA. For more information, refer to the federal act and California R&TC. Expanded Definition of Qualified Higher Education Expenses – For taxable years beginning on or after January 1, 2021, California law conforms to the expanded definition of qualified higher education expenses associated with participation in a registered apprenticeship program and payment on the principal or interest of a qualified education loan under the federal Further Consolidated Appropriations Act, 2020. The above lists are not intended to be all-inclusive of the federal and state conformities and differences. For more information, refer to the R&TC. Retirement Income – Federal law prohibits states from taxing the r­ etirement income of nonresidents. It also includes a prohibition on taxing retirement income paid by a partnership to a nonresident retired partner under any written plan, program, or arrangement in effect immediately before retirement begins. California does not impose tax on retirement income received by a nonresident after December 31, 1995. This includes military pensions, Individual Retirement Arrangement (IRA) distributions, Roth IRA conversions, Roth IRA distributions, Simplified Employee Pension (SEP), and self-employed retirement plans (Keoghs). Introduction This publication provides information on the ­California tax treatment of the distributions you receive from your pension plans, annuity plans, or IRAs, and how to report these amounts on your C ­ alifornia income tax return. The C ­ alifornia treatment of pensions, annuities, and IRAs is generally the same as the federal treatment of such income. However, there are some differences between C ­ alifornia and federal law that may cause the amount of your C ­ alifornia distribution income to be different than the amount reported for federal purposes. This publication identifies the most common differences and explains how to report these differences on your ­California tax return. Important Reminders California generally conforms to federal law. The ­California treatment of pension and annuity income is generally the same as the federal treatment. For example, C ­ alifornia and federal law are the same regarding: • The “General Rule.” • The “Simplified General Rule” (sometimes called the “Safe Harbor Method”). • IRA rollovers. • Roth IRAs. • Archer Medical Savings Accounts (MSAs). • Coverdell Education Savings Accounts (ESAs). • Current-year IRA deductions. • Lump-sum credit received by federal employees. • California Achieving a Better Life Experience (ABLE) accounts. Differences between C ­ alifornia and federal law. There are differences between C ­ alifornia and federal law for: • Social security and railroad retirement benefits. • Retirees using the “Three-Year Rule” whose annuity date was after July 1, 1986, and before January 1, 1987. • Some prior-year IRA deductions. • Health Savings Accounts (HSAs). Pensions invested in U.S. Government Securities. If your pension plan invested in U.S. Government securities or in mutual funds that invested in U.S. Government securities, you may not reduce the taxable portion of your pension distribution by the amount of interest attributable to the U.S. Government securities. FTB Pub. 1005  2023  Page 3 Common Terms Used in this Publication AGI ­California Adjustment Adjusted Gross Income An adjustment to your federal adjusted gross income (an addition or subtraction) to arrive at your ­California AGI Form 540 ­California Resident Income Tax Return Form 540NR ­California Nonresident or Part-Year Resident Income Tax Return Schedule CA (540) ­California Adjustments — ­Residents Schedule CA (540NR) ­California Adjustments — Nonresidents or Part-Year Residents Traditional IRA Any IRA that is not a Roth IRA or SIMPLE IRA Figuring Your ­California Pension, Annuity, and IRA Amounts Complete your federal tax return before starting your ­California tax return. If you need information on how to report your pension, annuity, or IRA income on your federal tax return, refer to federal forms, instructions, and publications. Once you have completed your federal tax return, compute the ­California amounts of your pension, annuity, or IRA income. If the ­California amount is different than the federal amount, you will need to make a ­California adjustment.* Depending on the ­California form you file, report your ­California adjustment on one of the ­following forms: • Schedule CA (540) for Form 540 filers. • Schedule CA (540NR) for Form 540NR filers. *A ­California adjustment is an addition to or subtraction from your ­federal AGI. Your federal pension, annuity, or IRA income is ­included in the federal AGI figure that you list on your ­California tax return (Form 540 or 540NR, line 13). Maximum Contribution Amounts to Traditional and Roth IRAs. Taxpayers may contribute the following amounts to a traditional and/or Roth IRA: Age 2019 2020 2021 2022 2023 $6,000 $6,000 $6,000 $6,000 $6,500 $7,000 50 & Over $7,000 $7,000 $7,000 $7,000 $7,500 $8,000 Under 50 2024 Maximum Contribution Amounts to 401(k), 403(b), and 457 Plans. Taxpayers may contribute the following amounts to a deferred compensation plan: Age 2019 2020 2021 2022 2023 Under 50 $19,000 $19,500 $19,500 $20,500 $22,500 50 & Over $25,000 $26,000 $26,000 $27,000 $30,000 2024 $23,000 $30,500 Maximum Contribution Amounts to Savings Incentive Match Plan for Employees (SIMPLE). Taxpayers may contribute the following amounts to a Simple IRA and Simple 401(k): Age 2019 2020 2021 2022 2023 Under 50 $13,000 $13,500 $13,500 $14,000 $15,500 50 & Over $16,000 $16,500 $16,500 $17,000 $19,000 Page 4  FTB Pub. 1005  2023 2024 $16,000 $19,500 Maximum Contribution Amounts to Keogh. The maximum contribution amount a taxpayer can make to a Keogh plan per year is as follows: • 2024, the amount is $69,000 • 2023, the amount is $66,000 • 2022, the amount is $61,000 • 2021, the amount is $58,000 • 2020, the amount is $57,000 • 2019, the amount is $56,000 Maximum Deduction and Contribution Amounts to a ­Simplified Employee Pension (SEP). The maximum deduction and contribution amounts per plan year to an SEP are as follows: • 2024, the lesser of $69,000 or 25% of compensation (compensation is limited to $345,000) • 2023, the lesser of $66,000 or 25% of compensation (compensation is limited to $330,000) • 2022, the lesser of $61,000 or 25% of compensation (compensation is limited to $305,000) • 2021, the lesser of $58,000 or 25% of compensation (compensation is limited to $290,000) • 2020, the lesser of $57,000 or 25% of compensation (compensation is limited to $285,000) • 2019, the lesser of $56,000 or 25% of compensation (compensation is limited to $280,000) Rollovers. Section 457 plans can be rolled over to other qualified plans. In addition, distributions from a Section 457 plan can be used to purchase permissive service credit for other retirement plans. A surviving spouse can roll over distributions from a deceased spouse’s qualified retirement plan to a Section 457 plan in which the surviving spouse participates. Social Security and Railroad Retirement Benefits ­ alifornia law differs from federal law in that ­California does not C tax: • Social security benefits. • Tier 1 railroad retirement benefits. • Tier 2 railroad retirement benefits reported on federal Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board.** • Sick pay benefits under the federal Railroad Unemployment Insurance Act. Make an adjustment to exclude any of this income if it was included in your federal AGI. See the instructions for Schedule CA (540), Part I or Schedule CA (540NR), Part II, Section A, lines 1z, 5a, 5b, and 6b, for more information. The information listed applies only to United States social security and railroad retirement. Foreign social security is taxable by California as annuity income. A tax treaty between the United States and another country which e ­ xcludes the foreign social security from federal income or which treats the foreign social security as if it were United States social security does not apply for California purposes. ** Railroad benefits paid by individual railroads are taxable by California. These benefits are reported on federal Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Three-Year Rule The “Three-Year Rule” was repealed for retirees whose annuity starting date is after December 31, 1986. However, if your annuity starting date was before January 1, 1987, and you elected to use the “Three-Year Rule,” continue to use this method. Under the “Three-Year Rule,” amounts you receive are not taxed until your after-tax contributions are recovered. Once your contributions are recovered, your pension or annuity is fully taxable. Generally, the ­California and federal taxable amounts are the same. If the California and federal taxable amounts are different, enter the difference on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, Section A, line 5b, column C. California Residents Receiving an Out-of-State Pension In General ­ alifornia residents are taxed on ALL income, including C income from sources outside ­California. Therefore, a pension attributable to services performed outside ­California but received after you became a ­California resident is taxable in its entirety by ­California. See Examples 1 through 4. Examples: Example 1 – You worked 10 years in Texas, moved to ­California and worked an additional 5 years for the same company. You retired in C ­ alifornia and began receiving your pension, which is attributable to your services performed in both ­California and Texas. Determination: You are a full-year resident of ­California. As a ­California resident, you are taxed on all your income, regardless of its source. Do not make an adjustment on Schedule CA (540) to exclude any of the pension income. Example 2 – You worked in New York for 20 years. You retired and moved permanently to C ­ alifornia on January 1. While living in ­California, you begin receiving your pension attributable to the services performed in New York. Determination: You are a full-year resident of ­California. As a ­California resident, you are taxed on all your income, regardless of its source. Do not make an adjustment on Schedule CA (540) to exclude any of the pension income. Example 3 – In December 2022, you retired and moved permanently to ­California. Prior to your move, you elected to receive your pension as a lump-sum distribution. Your pension is attributable solely to services you performed in Washington prior to your move. You received the lump-sum distribution in February 2023, after you became a ­California resident. Determination: You are a full-year ­California resident in 2023. As a ­California resident, you are taxed on all income, regardless of its source. Do not make an adjustment on Schedule CA (540) to exclude any portion of the Washington pension income. Example 4 – You worked in Georgia for 20 years. You retired and began receiving your monthly pension on January 1, 2023, while you were still living in Georgia. Your pension is $2,000 a month. Because you did not contribute to the plan, your pension is fully taxable. On May 1, 2023, you moved permanently to ­California. Determination: You are a part-year resident of ­California. While you are a nonresident, only your C ­ alifornia-source income is taxable by C ­ alifornia. While you are a resident, all of your income, regardless of its source, is taxable by ­California. Because your pension is attributable to services you performed in Georgia, your pension has a Georgia source. None of the pension received while you were a nonresident of C ­ alifornia is taxable by ­California. However, the pension received during the period that you are a C ­ alifornia resident (May 1 through December 31) is taxable by C ­ alifornia. Therefore, $16,000 ($2,000 x 8 months) is the taxable portion of the pension to enter on Schedule CA (540NR), Part II, Section A, line 5b, column E. Do not make an adjustment on Schedule CA (540NR), column B, to exclude any of the Georgia pension income. Military Pension If you are a C ­ alifornia resident, your military pension is taxable by ­California, regardless of where the service was performed. Nonresidents of C ­ alifornia Receiving a C ­ alifornia Pension In General ­ alifornia does not impose tax on retirement income received C by a nonresident after December 31, 1995. For this purpose, retirement income means any income from any of the following: • A qualified plan described in IRC Section 401. • A qualified annuity plan described in IRC Section 403(a). • A tax-sheltered annuity described in IRC Section 403(b). • A governmental plan described in IRC Section 414(d). • A deferred compensation plan maintained by a state or local government or an exempt organization described in IRC Section 457. • An IRA described in IRC Section 7701(a)(37), including Roth IRA and SIMPLE. • A simplified employee pension described in IRC Section 408(k). • A trust described in IRC Section 501(c)(18). • A military pension, even if the military service was performed in California. • A private deferred compensation plan program or arrangement described in IRC Section 3121(v)(2)(C) only if the income is either of the following: 1. Part of a series of substantially equal periodic payments (not less frequently than annually) made over the life or life expectancy of the participant or those of the participant and the designated beneficiary or a period of not less than 10 years. 2. A payment received after termination of employment under a plan program or arrangement maintained solely to provide retirement benefits for employees in excess of the limitations on contributions or benefits imposed by the IRC. • Any retirement or retainer pay received by a member or former member of a uniform service computed under Chapter 71 of Title 10, United States Code. FTB Pub. 1005  2023  Page 5 Individual Retirement Arrangements (IRAs) 2002 through 2004 The ­California treatment of IRAs is generally the same as the federal treatment. For information on the federal treatment of IRAs, get federal Pub. 590-A, Contributions to Individual Retirement Arrangements (IRAs), federal Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs), and federal Pub. 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). IRA Deduction SECURE Act repeal of maximum age 70½ The SECURE Act repealed the maximum age of 70½ for traditional IRA contributions. California law does not conform to this federal provision. If you report an IRA deduction on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, Section C, line 20, column A at age 70½ or older, include that amount deducted for federal in the total you enter on Section C, line 20, column B. Limit if Covered by Employer Plan If you are covered by an employer’s retirement plan or if you file a joint tax return with your spouse who is covered by such a plan, you may be entitled to only a partial deduction or no deduction at all, depending on your income. See the federal instructions for more information. You can elect to designate otherwise deductible contributions as nondeductible. However, you do not have to elect the same treatment for California purposes that you did for federal purposes. To take the election on the Schedule CA (540 or 540NR), the federal deduction is taken on Section C, line 20, column A. The election for California will be on Section C, line 20, column B or C. Following is a summary of the California IRA deduction allowed. To calculate any adjustments to your IRA deduction, see Schedule CA (540 or 540NR) instructions. 2005 through 2023 ­ alifornia law is the same as federal law. For a SIMPLE IRA, an C elective deferral may be made for up to the amount listed in the chart on this page. For a traditional IRA, the most that can be contributed is the smaller of: • The amount listed in the chart on this page or • 100% of your compensation. IRA Age Under 50 50 & Over 2005 $4,000 $4,500 2006-2007 $4,000 $5,000 2008-2012 $5,000 $6,000 2013-2018 $5,500 $6,500 Age Under 50 50 & Over 2019-2022 $6,000 $7,000 2023 $6,500 $7,500 Age Under 50 50 & Over 2005-2006 $10,000 $12,500 2007-2008 $10,500 $13,000 2009-2012 $11,500 $14,000 2013-2014 $12,000 $14,500 Age Under 50 50 & Over 2015-2018 $12,500 $15,500 2019 $13,000 $16,000 2020-2021 $13,500 $16,500 2022 $14,000 $17,000 Age Under 50 50 & Over 2023 $15,500 $19,000 SIMPLE IRA Page 6  FTB Pub. 1005  2023 California law was the same as federal law. For a SIMPLE IRA, an elective deferral may be made for up to the amount listed in the chart below. For a traditional IRA, the most that can be contributed is the smaller of: • The amount listed in the chart below or • 100% of your compensation. Age Under 50 50 or Older IRA 2002 - 2004 3,000 3,500 2002 7,000 7,500 SIMPLE IRA 2003 2004 8,000  9,000 9,000 10,500 1987 through 2001 ­ alifornia law was the same as federal law. The IRA deduction C is the lesser of $2,000 or 100% of your compensation. For a SIMPLE IRA, an elective deferral may be made for up to $6,500 for 2001 and $6,000 for 1997 through 2000. 1982 through 1986 ­ alifornia law was different from federal law. The maximum C federal deduction for an individual was $2,000, and was available to active participants in qualified or government retirement plans and to persons who contributed to tax‑sheltered annuities. The C ­ alifornia IRA deduction was the lesser of $1,500 or 15% of compensation with an additional deduction for a nonworking spouse, for a maximum deduction of $1,750. An IRA deduction was not allowed if you were an active participant in a qualified or government retirement plan or contributed to a tax-sheltered annuity. 1976 through 1981 ­ alifornia law was the same as federal law. The IRA C deduction for an individual was the lesser of $1,500 or 15% of compensation. An IRA deduction was not allowed if you were an active participant in a qualified or government retirement plan or contributed to a tax‑sheltered annuity. 1975 ­ alifornia law was different from federal law. ­California did not C allow an IRA deduction. Therefore, income earned in 1975 and 1976 on the 1975 contribution was taxable. Differences in the amount of IRA deduction you could claim may have occurred prior to January 1, 1996 if there was a difference between your federal self-employment income and your C ­ alifornia self-employment income. Form 540NR Filers If you file Form 540NR, your IRA deduction on Schedule CA (540NR), Part II, Section C, line 20, column E, is limited to the lesser of: • The IRA deduction allowed on your federal tax return. • The compensation reported on your Schedule CA (540NR), column E. Example: You are a nonresident of C ­ alifornia who is under 50 years of age. During the year, you worked temporarily in ­California. Your ­California compensation is $1,000, which you reported on Schedule CA (540NR), column E. Your federal compensation is $10,000. Your allowable IRA deduction on your federal tax return is $6,500. Determination: Your allowable ­California IRA deduction that you report on Schedule CA (540NR), column E, is $1,000. This is the lesser of (1) the $6,500 IRA deduction allowed on your federal tax return, or (2) the $1,000 of compensation you reported on S ­ chedule CA (540NR), column E. IRA Distribution Residents of ­California Your IRA distribution is fully taxable if your IRA contributions were fully deductible. If your IRA contributions were partially or fully nondeductible, then the nondeductible contributions are not taxed when they are distributed to you. Your basis is the amount of your nondeductible contributions. How you recover your basis depends on when your nondeductible contributions were made. Nondeductible Contributions Made After 1986 If you made nondeductible contributions after 1986, a part of each distribution is considered a return of your basis and is not taxable. The ­California taxable amount will generally be the same as the federal taxable amount, and you should not make an adjustment to your federal AGI on Schedule CA (540 or 540NR). However, if you elected to treat a contribution differently for federal purposes than for ­California purposes, the taxable amounts will differ. Compute the ­California taxable amount using the instructions for federal Form 8606, Nondeductible IRAs. When making this computation for the recovery of nondeductible contributions made after 1987, make sure you do not include nondeductible contributions made before 1987. The nondeductible contributions made before 1987 will be recovered as explained in the following paragraph. Compute the adjustment to federal AGI by comparing your federal taxable amount with the ­California taxable amount. • If the federal amount is more than the C ­ alifornia amount, enter the difference on Schedule CA (540), Part I or Schedule CA (540NR), Part II, Section A, line 4b, column B. • If the federal amount is less than the C ­ alifornia amount, enter the difference on Schedule CA (540), Part I or Schedule CA (540NR), Part II, Section A, line 4b, column C. Nondeductible Contributions Made Before 1987 If you made nondeductible contributions before 1987, none of your distribution is taxed until you have recovered your pre‑1987 basis. Because there was a difference between federal and California contribution limits before 1987, there may be a difference in the ­California and federal taxable amounts. If there is a difference, make an adjustment to reduce your federal AGI to the correct taxable amount for C ­ alifornia. Your adjustment is the lesser of your pre-1987 California basis or IRA distribution included in federal AGI. Use Worksheet I — Part A on page 14 to compute your pre‑1987 ­California basis. Use Worksheet I — Part B to compute your adjustment to federal AGI and your remaining pre-1987 ­California basis. See Example 1 and Example 2 on page 8. Use Worksheet II on page 14, as a summary of your C ­ alifornia basis and its recovery. If you have more than one IRA account, combine all your IRAs to complete the worksheet. If both you and your spouse/registered domestic partner (RDP) have IRAs, you each must complete a separate worksheet based on your own IRA contributions, deductions, and distributions. Nonresidents of C ­ alifornia ­ hange of Residency C ­From resident to nonresident For IRA distributions received while you were a California resident, see “Residents of California” on this page for the taxability of your distributions. From nonresident to resident For IRA distributions received while you were a California resident, see “2002 Law Changes IRA Basis of Former Nonresidents” to determine your nontaxable IRA basis. 2002 Law Changes IRA Basis of Former Nonresidents The law changed for taxable years beginning on or after January 1, 2002. If you are a California resident who was a former nonresident, the new law may affect the taxation of your IRA income. The law affects not only individuals who became California residents in 2002, but also individuals who became California residents prior to 2002. Under prior law, when you became a resident, you received a stepped-up basis in your IRA equal to your annual contributions made while a nonresident, plus the earnings on your IRA while a nonresident. You were allowed to carry over this IRA basis until it was fully recovered. Beginning in 2002, you no longer have this stepped-up basis. The law treats a former nonresident as though the individual were a resident for all prior years for all items of deferred income, including IRAs. Accordingly, a former nonresident will be allowed an IRA basis only for contributions which would not have been allowed as a deduction under California law had the taxpayer been a California resident. For a summary of IRA deductions allowed under California law, see “IRA Deduction” on page 6. FTB Pub. 1005  2023  Page 7 Do not include in California basis any rollover contributions from an employer sponsored or self-employed retirement plan, including a tax-sheltered annuity. If you became a California resident prior to 2002 and you have an unrecovered stepped-up IRA basis that you were carrying into 2002, restate your IRA basis using the new law. See Example 3 and Example 4 on page 9. Example 1 ­– You were a ­California resident in 2023, and you received an IRA distribution of $800. The only other distribution received from your IRA was in 2022. The amount of the 2022 distribution was $700. You made the following contributions and deductions in prior years: Year Contributions Federal Deductions ­California Deductions 1981 $1,500 $1,500 $1,500 1982 2,000 2,000 1,500 1983 2,000 2,000 1,500 __________________ ___________________ ___________________ Total $5,500 $5,500 $4,500 Worksheet I — Figuring California Basis and Adjustment to Federal AGI Part A  Pre-1987 C ­ alifornia Basis Example 1 (If you have already computed your ­California basis as of 12/31/22; skip to Part B.) 1 Enter your total federal deductions claimed prior to 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $5,500 2 Enter your total ­California deductions claimed prior to 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4,500 3 Total ­California basis. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1,000 4 Enter your ­California basis previously recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 700 5 ­California basis as of 12/31/22. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 $300 Part B  Adjustment to Federal AGI and Remaining Pre-1987 California Basis 1 Enter your taxable distribution from your federal Form 1040 or Form 1040-SR, line 4b (or line 5b) . . . . . . . . . . . . . 1 2 Enter your ­California basis as of 12/31/22 a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Enter the smaller of line 1 or line 2. Enter this amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, Section A, line 4b or line 5b, column B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 Remaining C ­ alifornia basis as of 12/31/23. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Example 1 $800 300 300 $0 Included in your federal AGI is the $800 IRA distribution. Only $500 ($800 – $300) of the distribution is taxable by ­California in 2023. Your adjustment to federal AGI is $300. Your ­California basis has now been fully recovered. When you receive a distribution in later years, the amount of the distribution taxable for federal purposes will also be the amount taxable by C ­ alifornia. No adjustment to federal AGI will be necessary. a) A nonresident or former nonresident will no longer receive a stepped-up basis for annual contributions and earnings attributable to periods of nonresidency. Example 2 ­– You were a ­California resident in 2023, and you received your first IRA distribution. The distribution was $1,000. For federal purposes, you included $800 in income and $200 was treated as the nontaxable recovery of your federal basis. You made the following contributions and deductions in prior years: Contributions Federal ­California Deductions Year Before 1987 After 1986 Deductions Before 1987 After 1986 1984 $2,000 $2,000 $0 1985 2,000 2,000 0 1986 2,000 2,000 0 1987 $2,000 0 $0 __________ __________ __________ __________ __________ Total $6,000 $2,000 $6,000 $0 $0 Worksheet I — Figuring California Basis and Adjustment to Federal AGI Part A  Pre-1987 C ­ alifornia Basis  (If you have already computed your C ­ alifornia basis as of 12/31/22; skip to Part B.) Example 2 1 Enter your total federal deductions claimed prior to 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $6,000 2 Enter your total ­California deductions claimed prior to 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 3 Total ­California basis. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6,000 4 Enter your ­California basis previously recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 0 5 ­California basis as of 12/31/22. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 $6,000 Part B  Adjustment to Federal AGI and Remaining Pre-1987 California Basis Example 2 1 Enter your taxable distribution from your federal Form 1040 or Form 1040-SR, line 4b (or line 5b) . . . . . . . . . . . . . 1 $800 2 Enter your ­California basis as of 12/31/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6,000 3 Enter the smaller of line 1 or line 2. Enter this amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, Section A, line 4b or line 5b, column B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 800 4 Remaining C ­ alifornia basis as of 12/31/23. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 $5,200 Because your ­California basis is more than the distribution, none of your IRA distribution will be taxed by ­California in 2023. Your adjustment to federal AGI is $800. You have a remaining ­California IRA basis of $5,200. You will recover your remaining C ­ alifornia basis in later years. Use Worksheet II, on the next page, to keep track of your C ­ alifornia basis and its recovery. Page 8  FTB Pub. 1005  2023 Worksheet II — Summary of C ­ alifornia Basis ­California Federal ­California Remaining Taxable Pre-1987 Deduction Basis in Total Taxable Basis ­California Year Contributions Federal ­California Contribution Distribution Amount Recovered Basis 1984 $2,000 $2,000 $0 $2,000 $2,000 1985  2,000  2,000  0  2,000  4,000 1986  2,000  2,000  0  2,000  6,000 2023 $1,000 $800 $800 $5,200 Example 3 – You became a California resident on January 1, 2001. The fair market value of your IRA on January 1, 2001, was $9,000. Your contributions in excess of California deduction limits during 1982-1986 were $2,500. You received IRA distributions of $1,500 in 2001; $3,000 in 2002; and $2,000 in 2003. Determination: Taxable year 2001 (prior law): California IRA basis, January 1, 2001 (fair market value on 1/1/01) $9,000 Less: IRA distribution  1,500 California IRA basis, December 31, 2001 $7,500 Taxable year 2002 (new law): IRA distribution, 2002 $3,000 Less: California IRA basis Contributions in excess of California deduction limits $2,500 Less: California IRA basis recovered in 2001  1,500 California IRA basis available in 2002   1,000 Taxable IRA income $2,000 California IRA basis, December 31, 2002, is $-0-. Taxable year 2003: IRA distribution, 2003 Less: California IRA basis available in 2003 Taxable IRA income $2,000 -0$2,000 Example 4 – You became a California resident on January 1, 2002. In 2001, while you were a nonresident of California, you received a $50,000 lump-sum distribution from your employer’s retirement plan and rolled over the distribution to an IRA. The earnings on your IRA in 2001 were $2,000. You received your first distribution from your IRA in 2002. The distribution was $4,000, all of which was taxable for federal purposes. Your California basis is determined as follows: Determination: Taxable year 2001 (prior law): California IRA basis, January 1, 2001 (earnings while a nonresident) $2,000 Less: IRA distribution in 2001 -0California IRA basis, December 31, 2001 $2,000 Taxable year 2002 (new law): IRA distribution: $4,000 Less: California IRA basis Contributions in excess of California deduction limits $ -0- Less: Basis recovered in prior years -0- California IRA basis -0Taxable IRA income $4,000 California IRA basis, December 31, 2002, is $-0-. A nonresident or former nonresident will no longer receive a stepped-up basis for annual contributions and earnings attributable to periods of nonresidency. FTB Pub. 1005  2023  Page 9 Coverdell Education Savings Accounts (ESAs) Under a Coverdell ESA, contributions are not deductible, earnings are excludable, and distributions are not taxable if used for qualified educational expenses. In general, ­California conforms to the federal rules regarding contribution limits, income phaseout limits and the treatment of distributions. Get federal Pub. 970, Tax Benefits for Education, for more information. If you have a taxable distribution from a Coverdell ESA, get form FTB 3805P, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the additional tax. Expanded Use of IRC Section 529 Accounts Funds California does not conform to the federal Tax Cuts and Jobs Act (TCJA) regarding account funding for elementary and secondary education or to the new federal rules relating to the maximum distribution amount. Archer Medical Savings Accounts (MSAs) An MSA is a tax-exempt trust or custodial account set up in the United States exclusively for paying the qualified medical expenses of the account holder or the account holder’s spouse or dependent(s) in conjunction with a high deductible health plan (HDHP). Get federal Form 8853, Archer MSAs and LongTerm Care Insurance Contracts, for more information. Use federal Form 8853 to report general information about new MSAs, to figure your MSA deduction, and to figure your taxable distribution for MSAs. In general, ­California law is the same as federal law regarding MSA contributions and deductions, but is different regarding the amount of additional tax on MSA distributions not used for qualified medical expenses. The additional tax is 12.5% for ­California. Therefore, for ­California purposes, there is no separate form to file to report general information about new MSAs or to figure your MSA deduction. However, if you have a taxable MSA distribution, file form FTB 3805P. After December 31, 2007, contributions cannot be made to an Archer MSA for you unless either of the following applies: • You were an active MSA participant before January 1, 2008. • You become an active MSA participant after December 31, 2007 because you are covered by an HDHP of an MSA participating employer. Health Savings Accounts (HSAs) An HSA is a tax-exempt trust or custodial account that you set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses in conjunction with an HDHP. California does not conform to federal legislation that enacted HSAs beginning January 1, 2004. Because California does not conform to federal legislation for HSAs, a contribution to an HSA is not deductible. Interest and other earnings of an HSA are not tax-deferred and must be included in taxable income. A rollover from an MSA to an HSA constitutes an MSA distribution not used for qualified medical expenses. Therefore, the distribution is subject to California income tax and the additional 12.5% tax under R&TC Section 17215. Page 10  FTB Pub. 1005  2023 Effective for taxable years beginning on or after January 1, 2007, the IRS allows a one-time rollover from an IRA to an HSA. California does not conform to this provision. Under California law, any distribution from an IRA to an HSA must be added to AGI on the taxpayer’s California tax return and would be subject to a 2½% additional tax under the rules for premature distributions under R&TC Section 17085. California Achieving a Better Life Experience (ABLE) Accounts A California ABLE account is a tax-exempt trust established in California exclusively for paying the qualified disability expenses of the designated beneficiary. The residency requirement for a designated beneficiary of the California Qualified ABLE Program was expanded to include residents of the United States. Get federal Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, for more information. Federal Form 5329 is used to figure additional taxes on tax-favored accounts for distributions not used for qualified disability expenses. If distributions from your ABLE account during a year are not more than your qualified disability expenses for that year, no amount is taxable for that year. If the total amount distributed during a year is more than your qualified disability expenses for that year, the earnings portion of the distribution is included in your income for that year and subject to additional tax. California law is the same as federal law regarding distribution rules but is different regarding the amount of additional tax on ABLE distributions not used for qualified disability expenses. The additional tax is 2.5% for California. If you have a taxable distribution from an ABLE account, you must file form FTB 3805P to figure the additional tax. For taxable years beginning on or after January 1, 2019, California conforms to certain provisions of the TCJA relating to ABLE accounts. The TCJA increases the limit on contributions made by the designated beneficiary to ABLE accounts up to the federal poverty level and allows IRC Section 529 plan accounts to rollover to ABLE accounts without penalty. Roth IRA In General A Roth IRA is an individual retirement plan that differs from a traditional IRA in the way contributions and distributions are taxed. Contributions to a Roth IRA are never deductible, and, if you meet the requirements, qualified distributions are not taxed. California law conforms to federal law regarding Roth IRAs. All Roth IRA transactions must be treated the same way for California purposes as they are for federal purposes and no California adjustment will be necessary unless you converted a traditional IRA into a Roth IRA and the California basis of the converted IRA was different from the federal basis. The following paragraphs provide information about calculating the California adjustment if one is necessary. Roth IRA Distributions In general, the taxable amount of your Roth IRA distribution will be the same for California and federal purposes. However, the taxable portion of your distribution may be different for California purposes than for federal purposes if: • You made a 1998 conversion from a traditional IRA to a Roth IRA. • You elected to report the taxable portion of the conversion over 4 years. • The federal basis of the traditional IRA was different from the California basis. In this case, refigure federal Form 8606, Part III, using California amounts. Your adjustment will be the difference between line 23 of federal Form 8606 completed with federal amounts and line 23 of federal Form 8606 completed with California amounts. If the: • Federal amount is more than the California amount, include the difference on Schedule CA (540), Part I or Schedule (540NR), Part II, Section A, line 4b, column B. • California amount is more than the federal amount, include the difference on Schedule CA (540), Part I or Schedule (540NR), Part II, Section A, line 4b, column C. Roth IRA Worksheet Roth IRA Conversions The tax due as the result of a conversion may be different for California purposes than for federal purposes if: • You made a conversion from a traditional IRA to a Roth IRA. • The federal basis of the traditional IRA was different from the California basis. Use the Roth IRA Worksheet below to figure the amount that is taxable for California and the adjustment you must enter on Schedule CA (540 or 540NR). Do Not Mail This Record xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx Do not file this worksheet with your tax return. Keep it for your tax records. Conversions from Traditional IRAs to Roth IRAs Part A – Pre-1987 ­California Basis 1 Enter your total federal IRA deductions claimed prior to 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1________________ 2 Enter your total ­California IRA deductions claimed prior to 1987 (or the deductions you could have claimed had you been a California resident) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2________________ 3 Total ­California pre-1987 basis. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3________________ 4 Enter your pre-1987 ­California basis previously recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4________________ 5 Pre-1987 ­California basis as of 12/31/22. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5________________ Part B – Post-1986 ­California Basis 6 Enter your total IRA contributions made after 1986. (Enter only contributions made to traditional IRAs. Do not include contributions to Roth IRAs.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6________________ 7 Enter your total ­California IRA deductions claimed after 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7________________ 8 Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8________________ 9 Enter your post-1986 California basis previously recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9________________ 10 Total ­California post-1986 basis. Subtract line 9 from line 8. If the result is zero, skip line 11 through line 15, enter zero on line 16, and continue to line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10________________ 11 Enter the total amount of distributions from traditional IRAs during 2023 that were converted to Roth IRAs (as shown on line 16 of federal Form 8606) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11________________ 12 Enter the value of all your traditional IRAs as of 12/31/23 (include any outstanding rollovers from traditional IRAs to other traditional IRAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12________________ 13 Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs as shown on line 16 of federal Form 8606) received in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13________________ 14 Add line 12 and line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14________________ 15 Divide line 11 by line 14, and enter the result as a decimal here. Carry the decimal to at least four places . . . 15 __ . __ __ __ __ 16 Post-1986 basis recoverable against a 2023 distribution. Multiply line 10 by line 15 . . . . . . . . . . . . . . . . . . . 16________________ Part C – Adjustment to Federal AGI 17 Enter the total amount of distributions from traditional IRAs during 2023 that were converted to Roth IRAs (as shown on line 16 of federal Form 8606) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17________________ 18 a  Enter the amount from Part A, line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18a_______________ b  Enter the amount from Part B, line 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18b_______________ c  Add line 18a and line 18b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18c________________ 19 Subtract line 18c from line 17. This is the total 2023 California taxable amount resulting from a 2023 conversion of a traditional IRA to a Roth IRA . . . . . . . . . . . . . . 19________________ 20 Enter the 2023 federal taxable amount of a distribution resulting from a 2023 conversion of a traditional IRA to a Roth IRA (included on Form 1040 or 1040-SR, line 4b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20________________ 21 Figure Your ­California Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21________________ If line 19 is less than line 20, subtract line 19 from line 20 and enter the result here and include it on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, Section A, line 4b, column B. If line 20 is less than line 19, subtract line 20 from line 19 and enter the result here and include it on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, Section A, line 4b, column C. Part-Year Residents. The taxable amount of a distribution from a traditional IRA (that is being converted to a Roth IRA in 2023) is included in your California source income only if you were a resident of California on the date of the distribution. FTB Pub. 1005  2023  Page 11 Simplified Employee Pension (SEP) Deduction Beginning with taxable year 1996, the allowable ­California SEP deduction is the same as the federal deduction. Prior to January 1, 1996, there may have been a difference in the amount of the SEP deduction you claimed if there was a difference between your federal self-employment income and your ­California self‑employment income (residents, part-year residents, or nonresidents of C ­ alifornia). Form 540NR filers. Your SEP deduction on Schedule CA (540NR), column E is based upon the percentage of self-employment income from Schedule CA (540NR), column E to total self-employment income computed according to ­California law on Schedule CA (540NR), column D. Multiply the SEP deduction from Schedule CA (540NR), column D by the ratio of ­California source self-employment income to total self-employment income. Enter this figure on Schedule CA (540NR), Part II, Section C, line 16, column E. Self-employment income from Schedule CA (540NR), column E x Schedule CA (540NR), Part II, Section C, Self-employment income line 16, column D from Schedule CA (540NR), column D Distribution Residents of ­California. The distribution of an SEP is treated the same as the distribution of an IRA. If you have a California basis for contributions made before 1987, your distribution is first considered a nontaxable return of your ­California basis. Once your ­California basis is recovered, your distribution will be reported the same as federal. If you have a California basis from contributions made after 1986 and before 1996 due to differences in the amounts of net income from self employment you reported for federal and California purposes, your California basis will be recovered on a pro-rata basis in the same manner as post 1986 nondeductible IRA contributions under federal law. Use Worksheet I — Part A on page 14 to compute your pre-1987 ­California basis. Then use Worksheet I — Part B to compute your adjustment to federal AGI and your remaining pre-1987 ­California basis. Use Worksheet II as a summary of your ­California basis and its recovery. ­California Basis. Your C ­ alifornia basis is the amount of your SEP contributions that were not allowed as a deduction on your ­California tax return prior to 1987. A nonresident or former ­nonresident will no longer receive a stepped-up basis for annual contributions and earnings attributable to periods of nonresidency. Self-Employed Retirement Plans (Keoghs) The ­California treatment of Keoghs is generally the same as the federal treatment. For information on the federal treatment of Keoghs, refer to federal Pub. 560. Deduction Beginning with taxable year 1996, your allowable ­California Keogh deduction is generally the same as your federal Keogh deduction. Page 12  FTB Pub. 1005  2023 Prior to January 1, 1996, there may have been a difference in the amount of the Keogh deduction you claimed if there was a difference between your federal self-employment income and your C ­ alifornia self‑employment income (residents, part-year residents, or nonresidents of C ­ alifornia). Form 540NR filers. Your Keogh deduction on Schedule CA (540NR), column E is based upon the percentage of self‑employment income from Schedule CA (540NR), column E to total self-employment income computed according to C ­ alifornia law on Schedule CA (540NR), column D. Multiply the Keogh deduction from Schedule CA (540NR), column D by the ratio of C ­ alifornia source self-employment income to total self-employment income. Enter this figure on Schedule CA (540NR), Part II, Section C, line 16, column E. Self-employment income from Schedule CA (540NR), column E x Schedule CA (540NR), Part II, Section C, Self-employment income line 16, column D from Schedule CA (540NR), column D Example 1 —   You are a part-year resident of C ­ alifornia. Your total self-employment income for the year is $300,000, and the amount to be reported on Schedule CA (540NR), Part II, Section B, line 3, column E, is $100,000. Your Keogh deduction for federal purposes is $15,000. Your Keogh deduction to be reported on Schedule CA (540NR), Part II, Section C, line 16, column E is computed as follows: $100,000   x   $15,000 = $5,000 $300,000 Report $5,000 on Schedule CA (540NR), Part II, Section C, line 16, column E. Distribution Residents of C ­ alifornia. The taxable amount of your Keogh distribution for C ­ alifornia will be different from the federal taxable amount if you have a C ­ alifornia basis to recover. ­California Basis. Your California basis is the amount of Keogh contributions in excess of California deduction limits in effect prior to 1996. For taxable years 1963 to 1970, California did not allow a deduction for contributions to defined contribution Keogh plans. For taxable years 1971 through 1986, California limited deductions for contributions to defined contribution Keogh plans to the lesser of 10% of earned income or $2,500. For years after 1986 but before 1996, California conformed to federal law regarding deduction limits, but did not necessarily adopt federal earned income figures for computing the deduction limitation. Accordingly, a self-employed individual has a California basis for any amounts contributed during these years for which the individual did not receive a California deduction. A nonresident or former nonresident does not have a California basis in a Keogh for all contributions and earnings attributable to periods of nonresidency. Nonresidents and former nonresidents have a California basis only if they contributed more than would have been allowed as California deductions had they been residents of the state. Recovery of C ­ alifornia Basis. Your Keogh distribution is first considered to be a nontaxable return of your C ­ alifornia basis. Therefore, when you receive your distribution, none of the distribution will be taxed until you have recovered your ­California basis. Once you have recovered your C ­ alifornia basis, your distribution must be reported the same as for federal purposes. If you have received a distribution and you have a ­California basis, make an adjustment on Schedule CA (540 or 540NR) to reduce your federal AGI to the correct taxable amount for ­California. Your Schedule CA (540 or 540NR) adjustment is the lesser of your pre-1987 California basis or Keogh distribution included in federal AGI. Use Worksheet I ­— Part A on page 14 to compute your pre-1987 ­California basis. Then use Worksheet I – Part B to compute your adjustment to federal AGI and your remaining pre-1987 ­California basis. Use Worksheet II as a summary of your ­California basis and its recovery. Exception: If you made voluntary contributions that were not deductible on your federal and ­California tax returns, do not include the amount of the voluntary contributions in your ­California basis. The recovery of the voluntary contributions for ­California is treated the same as the recovery for federal purposes. Do not make an adjustment on Schedule CA (540 or 540NR) to recover your voluntary contributions. Lump-Sum Distribution If you received a qualified lump-sum distribution and are using the special averaging method on Schedule G-1, Tax on LumpSum Distributions, follow the revised instructions below when completing Worksheet I – Part B: • Line 1. Enter the taxable distribution from your federal Form 1099-R, box 2a. • Line 3. Enter the smaller of line 1 or line 2. Compute the amounts to enter on Schedule G-1 as follows: ­California Federal Worksheet I taxable = Form 1099-R, – Part B, amount box 2a line 3 Enter the C ­ alifornia taxable distribution on Schedule G-1, line 8 unless the capital gain election was made. If the capital gain election was made: Federal Form 1099-R, Schedule G-1, ­California box 3 line 6 = taxable X Federal amount Form 1099-R, box 2a Schedule G-1, ­California line 8 = taxable amount – Schedule G-1, line 6 Change in Residency ­California Resident. A ­California resident is taxed on all income, regardless of its source. If you are a C ­ alifornia resident and receive a Keogh distribution attributable to your non‑California self‑employment income, your distribution minus your ­California basis is taxable by ­California. Tax on Early Distributions ­ alifornia has a tax on early distributions from IRAs, any C qualified retirement plans, annuities, and modified endowment contracts. This tax is generally the same as federal except the ­California tax rate is 2½% rather than 10%, except for early distributions from SIMPLE plans during the two-year period beginning on the date the taxpayer first began participation in the plan. In that case, the tax rate is 6% rather than 25%. ­California does not have taxes similar to the federal tax on excess accumulations, tax on excess contributions, or tax on excess distributions. Early Distributions. Early distributions are amounts you withdraw from your qualified retirement plan, annuity, or modified endowment contract before you are age 59½. For a list of qualified retirement plans, get form FTB 3805P. The tax on early distributions is 2½% of the amount of the distribution included in income or 6% in the case of an early distribution from a SIMPLE plan during the first two-year period beginning on the date the taxpayer first began participation in the plan. The tax on early distribution is imposed in addition to any regular C ­ alifornia income tax on the distribution. Figure this tax on form FTB 3805P. Exceptions: The tax on early distributions does not apply to: • The portion of the distribution that is a return of b
Extracted from PDF file 2023-california-publication-1005.pdf, last modified December 2023

More about the California Publication 1005 Individual Income Tax TY 2023

This packet is a guideline for how to treat the distributions you have obtained from pension plans and shows how to file these amounts with your income tax return.

We last updated the Pension and Annuity Guidelines in February 2024, so this is the latest version of Publication 1005, fully updated for tax year 2023. You can download or print current or past-year PDFs of Publication 1005 directly from TaxFormFinder. You can print other California tax forms here.

Other California Individual Income Tax Forms:

TaxFormFinder has an additional 174 California income tax forms that you may need, plus all federal income tax forms.

Form Code Form Name
Form 540 California Resident Income Tax Return
Form 540 Booklet Personal Income Tax Booklet - Forms & Instructions
Form 540 Schedule CA California Adjustments - Residents
Form 540-ES Estimated Tax for Individuals
Form 540-540A Instructions California 540 Form Instruction Booklet

Download all CA tax forms View all 175 California Income Tax Forms


Form Sources:

California usually releases forms for the current tax year between January and April. We last updated California Publication 1005 from the Franchise Tax Board in February 2024.

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About the Individual Income Tax

The IRS and most states collect a personal income tax, which is paid throughout the year via tax withholding or estimated income tax payments.

Most taxpayers are required to file a yearly income tax return in April to both the Internal Revenue Service and their state's revenue department, which will result in either a tax refund of excess withheld income or a tax payment if the withholding does not cover the taxpayer's entire liability. Every taxpayer's situation is different - please consult a CPA or licensed tax preparer to ensure that you are filing the correct tax forms!

Historical Past-Year Versions of California Publication 1005

We have a total of seven past-year versions of Publication 1005 in the TaxFormFinder archives, including for the previous tax year. Download past year versions of this tax form as PDFs here:


2023 Publication 1005

2023 FTB Publication 1005, Pension and Annuity Guidelines

2022 Publication 1005

2021 FTB Publication 1005, Pension and Annuity Guidelines

2021 Publication 1005

FTB Publication 1005 2021 Pension and Annuity Guidelines

2020 Publication 1005

2020 FTB Publication 1005 Pension and Annuity Guidelines

2019 Publication 1005

2019 FTB Publication 1005, Pension and Annuity Guidelines

2018 Publication 1005

2018 Publication 1005 - Pension and Annuity Guidelines

2017 Publication 1005

2017 Publication 1005 - Pension and Annuity Guidelines


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