Navigating federal taxes in retirement is complicated enough, but adding California’s tax maze into the mix can make it even more overwhelming. 

Unlike some states that limit or exempt retirement income from taxation, California’s progressive tax rates apply to most income sources—including many tied to your retirement. That’s why understanding how these taxes impact your retirement planning in California is vital for making smart financial choices.

This blog from Bulman Wealth Group discusses key tax strategies to help you keep more of your hard-earned retirement income.

Understanding California’s Unique Retirement Tax Landscape

State Taxes vs. Federal Taxes

Many retirees are surprised to learn that California’s tax rules differ from federal guidelines. While the IRS provides certain deductions and benefits, the state has its own policies that can significantly impact taxable income.

California State Income Tax

California has a progressive tax structure, ranging from 1% to 13.3%, the highest state income tax in the country. California taxes most sources of income, including:

• 401(k) and traditional IRA withdrawals
• Pension payments
• Annuities
• Interest income and short-term capital gains

However, Social Security benefits are not taxed at the state level, providing some relief for retirees who rely on these payments.

Bracket Creep

As your income increases, you may move into a higher tax bracket without realizing it, leading to a larger tax burden. While federal tax brackets are adjusted annually for inflation, California’s brackets are not fully indexed for inflation. This can gradually push you into higher tax brackets as investment income and required minimum distributions increase over time.

Property Taxes: What Retirees Need To Know

Proposition 13 limits annual property tax increases, but if you buy a new home, your taxes may be reassessed at current market rates, significantly increasing costs.

Proposition 19 allows homeowners aged 55+ to transfer their lower property tax base to a new home within California, but only under certain conditions.

Additional costs: Many counties have parcel taxes and special assessments that add hundreds or even thousands of dollars annually to tax bills, an often-overlooked expense for retirees.

Estate & Gift Tax Considerations

• Federal estate tax – The exemption is $13.99 million per person in 2025, but unless Congress extends the current limits, it is set to revert to approximately $6.4 million per person in 2026 (adjusted for inflation).

• No California estate or inheritance tax, but retirees with significant assets should prepare for potential federal tax changes.

• Gift tax – The federal gift tax exclusion is $19,000 per recipient in 2025. Any amount above this limit may count toward the donor’s lifetime exemption, which is linked to the federal estate tax limit.

A Bulman financial advisor in California can assess your situation and create personalized tax strategies to improve your retirement plan.

Key Tax Strategies for California Retirees

Tax-Efficient Investment Planning

Managing investments with taxes in mind can help you keep more of your income. Consider these strategies:

• Tax diversification: Holding a mix of taxable, tax-deferred, and tax-free accounts provides flexibility in managing withdrawals and tax liabilities.

• Long-term vs. short-term gains: Investments held for more than a year are taxed at 0%, 15%, or 20%, depending on income, whereas short-term gains are taxed at ordinary income rates.

• Dividends and interest: Qualified dividends follow the same 0%, 15%, or 20% tax brackets as long-term gains, while bond interest (except municipal bonds) is fully taxable as ordinary income.

• Tax-loss harvesting: Selling underperforming investments to offset taxable gains can help reduce your overall tax bill. Be mindful of the IRS wash sale rule, and remember that losses exceeding gains can be carried forward to future years.

RMD Withdrawal Strategies

Once you turn 73, Required Minimum Distributions (RMDs) become a key part of your retirement income. These mandatory withdrawals from traditional IRAs, 401(k)s, and other tax-deferred accounts are subject to income tax and can increase your overall tax burden if not managed carefully. Failing to take RMDs results in a steep 25% penalty on the amount not withdrawn.

Tips to optimize RMD withdrawals:

• Strategic timing: Instead of taking one large withdrawal at year-end, spreading RMDs throughout the year may help manage sequence risk and market volatility.

• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, donating RMDs directly to a qualified charity can satisfy distribution requirements without increasing taxable income.

• Roth conversions: Converting portions of a traditional IRA into a Roth IRA before RMDs begin can lower taxable distributions in future years.

Bulman’s advisors can help evaluate which approach best fits your situation while keeping RMD tax strategies in mind.

Estate and Legacy Planning

A strong tax strategy isn’t just about managing income during retirement—it’s also about planning for the efficient transfer of assets to minimize tax burdens for heirs. Real estate, retirement accounts, and investments all have tax implications that should be considered in an estate plan.

Key estate and legacy planning strategies include:

• Trusts: A well-structured trust can help bypass probate, speed up asset distribution, and provide tax advantages, especially for high-value estates.

• Real estate considerations: Property held in a trust may avoid probate, and under current law, heirs may benefit from a step-up in basis when inheriting real estate, potentially reducing capital gains taxes upon sale.

• Beneficiary designations: Regularly reviewing and updating designations on retirement accounts, life insurance, and annuities help prevent unintended tax consequences.

• Charitable giving: Strategies like donor-advised funds (DAFs) and charitable remainder trusts allow retirees to support causes they care about while potentially reducing estate tax liability.

Bulman’s wealth management and legacy planning advisors focus on tax-efficient strategies for California retirees. Whether you’re looking for a financial advisor in Roseville, CA, or a financial advisor in Temecula, Bulman is here to help.

Build More Financial Confidence for Your California Retirement With Bulman

Retirement tax planning is becoming more complex, but with the right strategies, you can position your savings to last longer and reduce unnecessary tax burdens.

At Bulman Wealth Group, we have decades of experience helping retirees develop customized retirement plans that incorporate income, healthcare, investments, taxes, and estate planning. Our team will help you navigate retirement tax benefits in California and manage your assets, even during market volatility.
Contact us today to discuss your retirement tax strategy and explore opportunities for a more confident financial future.