Financially, Marriage Makes a Lot of Sense for Retirees
There are some major financial benefits to tying the knot. From IRAs to Social Security and tax exemptions, there are many reasons (besides the obvious one: love) for older couples to say I do.
There are many financial pros and cons to getting married, but for those close to retirement who have been dating for a long time, there are several federal laws that provide some good financial reasons to give it some serious consideration.
Inheriting IRAs: Marriage Makes a Big Difference
If you are married, you can roll your deceased spouse's IRA over to your own IRA and delay taking required taxable distributions until you are age 72.
If you are not married and you are the beneficiary, your best option will be to transfer your deceased partner's IRA to the less tax favorable inherited IRA, where under the new Secure Act, this will trigger a lot more in taxes in most cases.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For example, if you are not more than 10 years younger than the deceased partner, instead of getting to delay taxable distributions until you’re 72, you will have to start taking them every year starting in the year after the deceased partner passes away, for the rest of your life.
On the other hand, if you are more than 10 years younger than the deceased partner, then the tax consequences will likely be worse. This is because you will have to remove all the money from the IRA by the end of the 10th year starting in the year after the deceased partner passes away, resulting in larger average taxable distributions than if taken over your life expectancy.
Pension Payments: Unmarried Out of Luck
If you are married, federal law requires that your spouse's monthly pension benefit must be set up with a survivorship benefit, which is normally 50% or more of the deceased spouse's benefit, to be paid to the surviving spouse for the rest of their life starting after a certain age. If you're not married and your partner passes away, no such survivor benefit is available.
When It Comes to Social Security Benefits …
If you are married, after your spouse starts taking their Social Security benefit you can claim half of it at your full retirement age instead of your own, if it’s more. (Full retirement age varies depending on what year you were born, for example if you were born in 1957, your full retirement age would be 66 and 6 months.)
You can also take a reduced amount based on half of the other spouse's benefit as early as age 62, if it’s more than your own reduced benefit amount at age 62.
And if your spouse passes away, you get 100% of their Social Security benefit if it's larger than your own, starting at your full retirement age, or a reduced amount as early as age 60.
If you are not married, no coordination of Social Security benefits exists between two partners. You can only take your own benefit starting as early as age 62, even if it's a lot smaller.
Marriage Means More Possibilities for IRA Contributions
If you are married and have no earned income, you are still allowed to put $7,000 into an IRA if you are 50 years of age or older ($6,000 if you are under age 50) based on the earned income of the other spouse.
If you are not married and not working, you cannot contribute to an IRA even if your partner has earned income.
Having a Spouse Can Be Worth Millions in Estate Tax Exemptions
A big reason for wealthy couples to tie the knot is to get the advantages of portability, which could save huge amounts in death tax.
Portability allows a wealthy married couple to combine their $11.58 million in federal death tax exclusions into one $23.16 million exclusion, and the result could be millions of dollars in death tax savings.
For example, say Michael and Margaret are married and Michael dies with $5.58 million in his estate. So he uses $5.58 million of his $11.58 million exclusion to shelter his entire estate from federal death taxes. He now has $6 million of his unused death tax exclusion left.
Through portability his unused $6 million exclusion can now transfer to his wife, Margaret, which would increase her death tax exclusion from $11.58 million to $17.58 million.
Under current tax law, if Margaret then dies, up to $17.58 million of her estate could be passed on to her heirs without any federal death tax.
If they were not married, Michael's unused portion of his exclusion, which in this example is $6 million, could not transfer to Margaret, and it would be wasted.
At Margaret's death, if her estate was at least $17.58 million, this could potentially cost their heirs almost $2.4 million in federal death tax just because the couple was not married.
Remember that old song by the Fifth Dimension, "Am I Ever Going to Hear My Wedding Bells?” If these federal laws in favor of marriage are important to you, then the answer to the question in this old song may be yes.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
What Is a Debt-to-Equity Ratio and How Can Investors Use It?
A debt-to-equity ratio is a way to measure how solid a company's financial position is. Here, we take a closer look at what it is and how investors can use it.
By Coryanne Hicks Published
-
Three Gen X Retirement Mistakes for Millennials, Gen Z to Avoid
Many Gen Xers haven’t prioritized saving for retirement and face a crisis as the first generation to retire without substantial support from pension plans.
By Tiffani Potesta Published
-
Three Gen X Retirement Mistakes for Millennials, Gen Z to Avoid
Many Gen Xers haven’t prioritized saving for retirement and face a crisis as the first generation to retire without substantial support from pension plans.
By Tiffani Potesta Published
-
Six Essential Retirement Strategies for Baby Boomers
Emergency funds, estate plans, different kinds of insurance and smart investing strategies are all parts of a strong retirement plan.
By Justin Stivers, Esq. Published
-
Why Has Your Car Insurance Gone Up? (And What You Can Do About It)
Inflation, technology and bad drivers have jacked up everybody’s insurance rates, but there are a few things you can do to possibly lower yours.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
If You Have a Pension, Smart Tax Planning Should Start Now
Adding pension income to Social Security benefits and income from required minimum distributions could see you facing a tax torpedo and higher Medicare costs.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Nearing Retirement With Student Loan Debt? What You Can Do
Many older adults will struggle with rising costs (health care and otherwise) and not enough savings. Here’s how they can manage lingering student debt.
By Patrick M. Simasko, J.D. Published
-
Risk in Retirement: What’s the Right Level for You?
Your situation and retirement goals call for an investment approach that takes into account your risk tolerance, risk comfort and capacity for risk.
By Scott Noble, CPA/PFS Published
-
The Earlier You Take Advantage of Your 401(k), the Better
The power of compound interest can turn modest contributions into big savings for retirement.
By Rich Guerrini Published
-
How Non-Traded REITs Could Give Your Roth IRA a Boost
In addition to increasing the diversity of your portfolio, adding a non-traded REIT within your Roth IRA allows the resulting dividends to grow tax-free.
By Edward E. Fernandez Published