California Rdp Adjustments Worksheet - Recalculated Federal Adjusted Gross Income - 2016 Page 6
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17Related Parties
For California income tax purposes, if you or your RDP
contributed to a Roth IRA in 2016 you need to review the
In applying the IRC for California purposes:
income phase out limitations . The allowable Roth IRA
contribution may be reduced based on you and your
•
The definition of related parties includes RDPs .
RDP’s combined federal modified AGI .
(IRC Section 267)
•
The definition of spouse includes RDPs . Therefore, no
2016 Filing Status
Federal Modified AGI
gain or loss will be allowed for any transfer of property
between RDPs . (IRC Section 1041)
Married/RDP Filing Jointly or
$184,000 – $194,000
•
Qualifying Widow(er)
An RDP will be treated as a spouse for purposes
of determining ownership of stock . However, if the
Single, Head of Household, or
$117,000 – $132,000
treatment of an RDP as a spouse will lead to the
Married/RDP filing separately and
disqualification of the taxpayer’s choice of business
you did not live with your spouse/
entity, then the RDP will not be treated as a spouse
RDP for all of 2016
for California purposes . (IRC Section 318)
Married/RDP Filing Separately and
$0 – $10,000
you lived with your spouse/RDP at
any time in 2016
Example:
Chris, Taxpayer One, and Pat, Taxpayer Two, are RDPs .
Chris made a contribution to his Roth IRA of $5,000 .
Chris’s federal modified AGI is $90,000 . Pat made a
contribution to his Roth IRA of $5,000 . Pat’s federal
modified AGI is $95,000 . Chris and Pat’s combined
federal AGI exceeds the $194,000 limitation for an
allowable Roth IRA contribution . Because their combined
federal modified AGI exceeds the limitation, for California
purposes the Roth IRA contributions of Chris and Pat
are treated as “excess contributions . ” However, California
does not impose the six percent excise tax that is
imposed under federal law on excess contributions to
Roth IRAs .
If Chris or Pat receives a “qualified distribution” from a
Roth IRA, the “qualified distribution” is tax-free and is not
includible in their California taxable income . This tax-free
treatment applies even if the “qualified distribution”
includes earnings attributable to a previous “excess
contribution” for California purposes .
Page 6 FTB Pub . 737 2016
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