Bill Would Have State Match U.S. IRA Rules

A legislative proposal allowing Californians to set aside more tax-deferred money for retirement would bring the state into sync with federal law--but also might cost the already-troubled state budget tens of millions of dollars.

The plan by Assemblyman John Campbell (R-Irvine) would adopt for California taxpayers the same new retirement guidelines in place nationally. Maximum contributions to 401(k) and 403(b) plans, for example, would increase next year by $500 to $11,000, and to $15,000 by 2006. Contributions to IRAs would rise by $1,000 to a total of $3,000 until 2004 and eventually would grow to $5,000 by 2008, with subsequent adjustments made for inflation.

The changes could cost California coffers tens of millions of dollars annually in lost tax revenues, officials said, although a formal estimate of the impact has not yet been completed.

The state Department of Finance has not taken a position on the proposal, but is studying it, said spokesman Sandy Harrison.

“If we felt there was a significant cost to the state in terms of lost revenues, we would probably be alarmed and might well oppose the bill,” Harrison said.

Gov. Gray Davis and lawmakers are facing the prospect of closing an estimated $12-billion budget deficit.

Campbell, who is vice chairman of the Assembly Budget Committee, said it would be “flat unfair” to bar state taxpayers from taking advantage of the new federal tax breaks.

“By not conforming to these rules, the state will effectively keep Californians from being able to contribute as much for their retirements as federal rules allow, even though we have one of the highest costs of living,” he said.

Campbell, a certified public accountant, said the state’s failure to pass conforming legislation is already creating confusion for taxpayers as they try to determine how much money to set aside for their retirement plans next year.