California’s high cost of living and complex tax laws can leave retirees missing out on valuable savings. From Social Security benefits to home equity and investments, key tax advantages often go overlooked.

At Bulman Wealth Group, we focus on tax planning strategies that help retirees and pre-retirees get the most out of retirement tax benefits in California.  

This guide will highlight commonly missed tax strategies that could help improve your retirement planning in California.

Important Tax Planning Strategies for California Retirees

Social Security Taxation: How California Differs From Federal Rules

One major advantage for California retirees is that the state does not tax Social Security benefits, providing relief compared to other income sources. At the federal level, up to 85% of Social Security benefits can be taxed, depending on your combined income.

However, this doesn’t eliminate the need for tax planning. Since 401(k)s, IRAs, and pensions are taxable at the state level, structuring withdrawals strategically can help control your overall tax burden.

Should You Delay Social Security?

If you expect higher taxable income in early retirement, delaying Social Security until age 70 can increase your monthly benefit while allowing more time to implement tax-saving strategies.

Asset Location for Tax Efficiency

Not all investments are taxed the same way, so where you hold assets can significantly affect your tax liability.

Tax-inefficient assets (bonds, REITs, actively managed funds) are better suited for tax-deferred accounts like 401(k)s or traditional IRAs to delay taxation.

Tax-efficient assets (qualified dividend-paying stocks, municipal bonds) can be held in taxable brokerage accounts to reduce ongoing tax liability.

Tax-loss harvesting allows retirees to sell underperforming assets to offset taxable capital gains, reducing total tax liability over time.

Avoiding the 3.8% Net Investment Income Tax (NIIT)

Higher-income retirees may be subject to the federal Net Investment Income Tax (NIIT), a 3.8% surtax on investment earnings, including capital gains, dividends, rental income, and interest.

Who pays the NIIT?

Individuals with MAGI over $200,000 and married couples filing jointly with MAGI over $250,000.

Strategies to reduce NIIT:

• Managing capital gains: Hold investments for more than one year to qualify for lower long-term capital gains tax rates (0%, 15%, or 20%).

• Tax-advantaged accounts: Invest in Roth IRAs, Roth 401(k)s, or Health Savings Accounts (HSAs) for tax-free growth and withdrawals, which do not count toward MAGI.

• Strategic retirement withdrawals: Withdraw from after-tax and tax-free sources first to stay below NIIT thresholds.

Roth IRA Conversions: A Strategy for Lowering Future Taxes

Roth IRA conversions can help manage future tax liabilities if timed wisely. Many convert in lower-income years before RMD withdrawal strategies take effect at 73.

Benefits of Roth conversions:

• Lower future RMDs: Roth IRAs have no RMD requirements, making them a key part of RMD tax strategies to reduce taxable withdrawals.

• Tax-free withdrawals: After five years and reaching age 59½, withdrawals are completely tax-free.

• Estate planning advantages: Roth accounts transfer tax-free to heirs, offering a valuable legacy planning tool.

Home Equity Strategies for California Retirees

For many Californians, their home is their largest asset, often comprising a substantial portion of their net worth. Using home equity wisely can improve cash flow while minimizing taxes.

Selling Your Home: Capital Gains Considerations

Longtime homeowners may face capital gains taxes when selling. The IRS allows exclusions of $250,000 (single filers) and $500,000 (married couples) if the home was a primary residence for two of the last five years. However, California does not offer a state-level exclusion, so gains above federal limits are taxed at 1%–13.3%.

Downsizing to Reduce Expenses

Selling a larger home and moving to a smaller one can help retirees:

• Lower property taxes if the new home has a lower assessed value.
• Reduce maintenance and utility costs.
• Free up equity for retirement investments or living expenses.

Proposition 19: Keeping Your Lower Property Tax Base

If you’re 55 or older, Proposition 19 allows you to transfer your property tax base to a new home up to three times, preventing a major tax increase and potentially saving thousands annually.

Long-Term Care Planning & Tax Implications

As medical expenses continue to rise, long-term care planning in California is vital for a financially stable retirement. Many assume Medicare covers nursing home or in-home care, but it does not cover most long-term care costs—leaving retirees financially exposed.

Tax Benefits of Healthcare Planning

Deductible premiums: If total medical expenses exceed 7.5% of adjusted gross income (AGI), a portion of long-term care insurance premiums may be deductible.

Tax-free benefits: Hybrid policies that combine life insurance with long-term care coverage allow tax-free withdrawals for qualified care expenses.

Health Savings Accounts (HSAs): HSA funds can be used tax-free for long-term care insurance premiums up to IRS-set deduction limits.

Estate and Legacy Planning for California Retirees

A well-structured estate plan helps pass on assets, reduce tax burdens for heirs, and distribute wealth according to your wishes.

Key Estate Planning Strategies

Trusts (Revocable & Irrevocable): Avoid probate, maintain control over assets, and streamline inheritance. Irrevocable trusts can remove assets from a taxable estate and provide protection from future tax changes.

Gifting appreciated assets: Transferring stocks, real estate, or other high-gain assets while alive can lower future tax burdens. The recipient assumes the original cost basis, which may benefit heirs in lower tax brackets.

Donor-Advised Funds (DAFs): Donating appreciated assets to a DAF provides an immediate tax deduction while allowing charitable contributions over time.

Qualified Charitable Distributions (QCDs): Retirees 70½ or older can donate up to $105,000 (2025 limit) directly from an IRA, satisfying RMD withdrawal strategies while avoiding taxable income.

Annual gift exclusion: In 2025, you can gift up to $19,000 per recipient (or $38,000 for couples) without counting against your estate and legacy planning exemption, reducing taxable estate value.

Bulman Wealth Group’s Financial Advisors in California Can Help

At Bulman Wealth Group, we believe tax planning is crucial to any sustainable retirement plan. We take a comprehensive approach to financial planning, helping you pursue your version of financial independence.

Our Roseville, CA, financial advisor team and financial advisor Temecula professionals have decades of experience creating tax-smart investment strategies.

Want to make sure you’re not overpaying in taxes?

Schedule a free consultation here.