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Planning on retiring in California?
The Golden State ranks among the most expensive spots for retirees in the nation, with $1 million in retirement savings lasting just 12 years, The Sacramento Bee previously reported.
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“Saving for retirement can feel like an uphill battle — especially in California, where the cost of living and taxes are some of the highest in the country,” said Bulman Wealth Group, a Roseville-based financial planning firm.
Retirement funds allow people to hold investment portfolios that accrue profits after years of adding money into the accounts.
For instance, if you open a 401(k) retirement account at age 30 and contribute as much as possible each year, you can expect a return of $700,000 by age 60, according to personal finance platform SmartAsset’s retirement savings calculator. That doesn’t include contributions from your employer.
Withdrawing funds too early may leave you paying additional taxes, according to the Internal Revenue Service.
Here’s how to get the most out of your retirement funds:
What types of retirement funds can I enroll in?
“For many Californians, 401(k)s are the cornerstone of retirement savings” due to benefits such as tax advantages, employer matching and compounding growth, Bulman Wealth Group said
A traditional 401(k) plan is a pre-approved retirement fund that allows employees to invest some of their salary now in order to return a profit after retirement.
Contributions to 401k plans are not taxed until money is pulled out of the account, the IRS said.
Because 401k contributions are taken out of paychecks by employers before income taxes are applied, taxable incomes will be lower annually, according to Fidelity Investments.
Typically, the average return for 401k plans is 5% to 8% annually, according to SmartAsset.
Profits on 401(k) plans rely on asset allocations, fees, contributions and market conditions.
Individual retirement arrangements — better known as IRAs — “allow you to make tax-deferred investments to provide financial security when you retire,” the IRS said.
Traditional IRA account holders are not required to pay income taxes when contributing to the funds. Tax payments are deferred until money is withdrawn.
In the case of Roth IRA accounts, income tax is paid at the time of contributing to the fund.
For both IRA types, the rate of return is based on the type of investments in your portfolio, such as stocks, bonds and mutual funds.
“If these investments make money in the form of interest or dividend payments, your savings will continue to grow over time,” Northwestern Mutual, a Wisconsin-based financial organization, said.
Contributions to a traditional IRA can be claimed as a deductible on a federal income tax return if the account holder is not covered by a retirement plan at work. Partial deductibles may be available if employer coverage is offered and income exceeds certain levels.
Contributions are not deductible for Roth IRA plans, according to the IRS.
Do I qualify for California retirement funds?
CalSavers is a California retirement plan that automatically enrolls employees in Roth IRAs and other accounts.
“CalSavers is available to California workers whose employers don’t offer a retirement plan, self-employed individuals and others who want to save extra,” the retirement plan said.
California workers can choose to opt out of the CalSavers program.
Employers must register with CalSavers in order for their employees to have retirement options.
If your income is higher than the limits imposed for a Roth IRA, you can switch to a traditional IRA.
Modified adjusted gross income limits in 2026 are $153,000 to $168,000 for single filers, $242,000 to $252,000 for married joint filers and $0 to $10,000 for married single filers.
If your employee does not choose a contribution rate, the standard rate is 5% of your gross income rate.
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Rates automatically increase by 1% annually, eventually reaching 8%, CalSavers said.
What retirement funds are available to California public employees?
Government workers have multiple options for investing money via the California Public Employees’ Retirement System.
CalPERS plans include 401(k), 403(b), IRAs and 457 accounts.
Public employees can open CalPERS 457 plans, which allow investing with pre-tax and Roth after-tax contributions.
“The plan has an ‘all-in’ fee structure with no hidden costs, so you can keep more of your investment returns,” the retirement agency said.
CalPERS provides a public agency search catalog, so employees can check if employers offer 457 plans.
The state has a 403(b) Compare program, featuring tax-sheltered annuity plans offered by public schools and some charities. Some of your salary can be deferred and taxed when assets are withdrawn. 403(b) plans offer designated Roth IRA accounts as well.
Eligible public employers can be found online.
Other public employees are offered 401(k) and 457 retirement plans through Savings Plus.
Another retirement fund offered by CalPERS is the Supplemental Contributions Plan. This fund allows public employees to contribute after-tax dollars into the account, but any return is tax-deferred until employees start taking withdrawals.
How can I maximize my return on retirement funds?
In 2026, the maximum amount a person younger than 50 can personally contribute to a 401(k), 403(b) and 457 plan is $24,500 annually.
However, employers may contribute additional funds, according to the IRS.
Accountholders 50 and older can contribute an additional $8,000 each year by using catch-up contributions if the 401(k), 403(b) and 457 plan allows.
“These amounts are subject to cost-of-living adjustments,” the IRS said.
The total contributions for all accounts under the same employer have a maximum of $72,000 annually — or 100% of the employee’s compensation, whichever is less. This includes elective deferrals, employer matching and nonelective contributions and allocations of forfeitures.
The limit of total contributions made to a traditional and Roth IRA combined is $7,500 for 2026, or $8,600 if you are older than 50.
CalSavers contribution limits follow the same regulations as traditional and Roth IRA.
The t for CalPERS Supplemental Contributions Plan is $72,000 in 2026.
How much can I get taxed for withdrawing money early?
You’re not required to pay taxes when contributing to traditional IRA and 401(k) plans.
Instead, income taxes are added when withdrawing investments from those accounts.
Once you turn 73 years, you’ll be required by law to start withdrawing money from traditional IRA and 401(k) plans, according to the IRS. Minimum withdrawals are calculated by an account balance and age.
Withdrawals are not taxable for original owners of a Roth IRA fund.
After age 60, withdrawals are not taxable for original owners of a Roth IRA fund or CalSavers plan as long as the first contribution to the accounts were made at least five years prior.
For 457 plans and CalPERS Supplemental Contributions Plan, you can start taking distributions once you retire or leave state employment.
If you’re unemployed, withdrawals can only be made once you turn 73. If you are employed, the requirement is pushed to 74 years old. Roth after-tax 457 plans do not have a minimum withdrawal age.
CalPERS Supplemental Contributions Plan withdrawals will be charged income tax.
Roth accounts in 403(b) plans will not see a tax when distributing money but only with tax-deferred savings.
If you take money out a CalSavers plan, 403(b), traditional IRA, Roth IRA or 401(k) plan before you turn 60, an additional 10% tax will be included.
Are there exemptions for the early withdrawal tax?
The IRS provides exemptions for the early withdrawal tax.
For example, you can avoid paying taxes for withdrawing retirement funds early if you become permanently disabled, or you’re paying for qualifying higher education expenses.
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Military service members called to active duty are also exempt.