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Making Your Money Last

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.

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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.)

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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.

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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.

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About the Author

Mike Piershale, ChFC

President, Piershale Financial Group

Mike Piershale, ChFC, is president of Piershale Financial Group in Barrington, Illinois. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.
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