Prop 42: $0 in new state taxes on retirement savings

California voters will decide in November whether to permanently block the state from taxing retirement accounts and personal savings. Proposition 42 appears on the ballot to close a gap in the state constitution that currently allows the Legislature to impose new levies on these funds.

Julian Cañete, president and CEO of the California Hispanic Chambers of Commerce, argues the measure protects the financial stability of small business owners. He notes that many Latino entrepreneurs in his network do not have employer-sponsored retirement plans. Instead, they fund their own IRAs or savings accounts after covering payroll and rent. Cañete describes these owners as working hard to build wealth for their own future, to support their children, or to pass their businesses to the next generation.

The current state constitution grants the Legislature authority to tax retirement accounts, savings accounts, and other personal property. Since 2019, lawmakers in Sacramento have introduced five separate bills attempting to tax retirement and personal savings. None of those proposals passed, but the legal authority to try again remains in place.

Cañete points out that California ranks as the third most expensive state for retirees. He says business owners frequently worry that rising taxes and costs of living make it harder to save. Some owners have had to keep working longer than planned because they could not afford to stop.

If passed, Proposition 42 would prohibit retroactive taxes on savings. This means the state could not change tax rules after individuals have already saved money. The measure does not cut funding for schools, public safety, or health care. It also leaves income and property taxes unchanged.

Support for the measure includes the California Small Business Association and the California Multicultural Business Alliance. Cañete says the proposal also has backing from firefighters, peace officers, construction workers, veterans, and seniors.

The measure seeks to ensure that money set aside for retirement or personal savings is protected from future state tax increases. Voters will cast their ballots in the November election.