Voters Can Shield Retirement Savings From Future State Taxes
Proposition 42 would amend the state constitution to block new levies on personal accounts, a measure backed by Latino business leaders and small business groups.
By Gabriela Ivanov ·
California voters will decide on November 3 whether to close a constitutional gap that allows the state to tax personal savings. Proposition 42 seeks to prevent future legislation from imposing new levies on retirement accounts, pensions, and other personal property. The measure also bars retroactive taxes, ensuring that rules cannot be changed after individuals have already set aside money.
Julian Cañete, president and CEO of the California Hispanic Chambers of Commerce, said most Latino owners he works with never had a formal company retirement plan. Many started taquerías, body shops, or cleaning services. Their savings for old age came from their own pockets, usually only after payroll and rent were paid. Cañete noted that some owners skip their own paychecks during slow months to keep employees current, then catch up on retirement savings later.
The current state constitution gives the Legislature the authority to tax retirement and savings accounts. Lawmakers have attempted to use this power since 2019. Five separate proposals to tax retirement and personal savings were introduced in Sacramento during that period. None passed, but the legal authority to do so remains in the constitution.
For small business owners, these accounts serve as a primary safety net. The funds are intended for living expenses in later years, helping children, or passing businesses to the next generation. Cañete said California is currently the third most expensive state for retirees. He reported that many owners worry about covering the cost of living while trying to save. Some have had to work longer than planned because they could not afford to stop.
The proposal does not cut funding for schools, public safety, or health care. It also does not change income or property taxes. Backers include the California Small Business Association, the California Multicultural Business Alliance, firefighters, peace officers, construction workers, veterans, and seniors.
If voters approve Proposition 42, the state government would need to seek a different constitutional path to tax these specific types of personal accounts. The amendment would apply to IRAs, 401(k)s, and savings accounts held by California residents. The measure will appear on the November ballot alongside other statewide initiatives.
