The Financial Effects of Losing a Spouse
Even amid grief, it's important to reassess your finances. With the loss of your spouse's income, you may find yourself in a lower tax bracket or that you qualify for new deductions or credits.


The death of a spouse is one of the most difficult things imaginable. Besides the emotional toll, surviving spouses typically confront financial issues, which often trigger tax-related questions and consequences. Some of them are fairly straightforward, while others can be tricky. That's why Letha McDowell, president of the National Academy of Elder Law Attorneys, advises surviving spouses not to make major financial changes immediately. Instead, she tells them to reassess their finances from a tax perspective.
The loss of income after a spouse dies certainly has tax implications. For instance, if a drop in income means the surviving spouse needs to tap into a retirement account, McDowell points out that "the taxes may be less than initially anticipated because, if you have lower income, you may be in a lower bracket." Less income could also mean that the surviving spouse now qualifies for certain tax deductions or credits that have income caps or phase-out rules. Local jurisdictions often have income-based property tax breaks that may suddenly become available, too.
Eventually, every surviving spouse has a new filing status. A joint federal tax return is allowed for the year the deceased spouse dies if the surviving spouse didn't remarry. The qualifying widow(er) status may be an option for two more years if there's a dependent child. After that, a surviving spouse who doesn't remarry must file as a single taxpayer, which usually means less favorable tax rates and a lower standard deduction.

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.
Inheriting a traditional IRA can also affect the surviving spouse's taxes, but first, there's a decision to make. An inheriting spouse can be designated as the account owner, roll the funds into their own retirement account, or be treated as a beneficiary. That decision will affect required minimum distributions and ultimately the surviving spouse's taxable income.
As either the designated owner of the original account or the owner of the account with rolled-over funds, the surviving spouse can take RMDs based on their own life expectancy. If the third option -- staying as the IRA's beneficiary -- is chosen, RMDs are based on the life expectancy of the deceased spouse. "Almost everyone either rolls [an inherited IRA] into their own IRA or at least they transfer it into an account in their name," McDowell notes.
"Consolidating makes things much easier to manage." The third option may make sense if the surviving spouse is at least 72 years old, but the deceased spouse wasn't. In that case, RMDs from the inherited IRA are delayed until the deceased spouse would have turned 72.
A surviving spouse also receives a stepped-up basis in other inherited property. "If the assets are held jointly between spouses, then there's a step up in one half of the basis," McDowell says. "But if an asset was owned solely by the decedent, then that would be a step up of 100%." In community property states, the total fair market value of property, including the portion belonging to the surviving spouse, becomes the basis for the entire property if at least half its value is included in the deceased spouse's gross estate.
There's also a special rule that helps surviving spouses who want to sell their home. In general, up to $250,000 of gain from the sale of a principal residence is tax-free if certain conditions are met. The exemption jumps to $500,000 for married couples filing a joint return, but a surviving spouse who hasn't remarried can still claim the $500,000 exemption if the home is sold within two years of the deceased spouse's death.
As for estate taxes, there's an unlimited marital deduction as well as this year's $11.7 million estate tax exemption (the amount is adjusted annually for inflation). If the deceased spouse's estate is nowhere near that amount, the surviving spouse should still file Form 706 to elect "portability" of the deceased spouse's unused exemption amount. This protects the surviving spouse if the exemption is lowered, as President Joe Biden and others have proposed doing. If that happens, "it's going to be important for a surviving spouse to have elected portability," McDowell warns. "And if you don't file, you don't get it."
Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.
-
-
Should I Trade Stocks or Options?
Answering the question "should I trade stocks or options" will depend on your own risk tolerance, investing objectives and understanding of market dynamics.
By Jared Hoffmann Published
-
This Is How You Can Be a Snowbird in Retirement
There’s a lot to consider, and warm weather shouldn’t be the only deciding factor. For instance, will you rent or buy? What’s the tax and health care situation?
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Retirees, It's Not Too Late to Buy Life Insurance
life insurance Improvements in underwriting have made it easier to qualify for life insurance, which can be a useful estate-planning tool.
By David Rodeck Published
-
Best Banks for Retirees
banking Kiplinger's 2023 list of the best banks for retirees.
By Lisa Gerstner Published
-
Kiplinger's Tax Map for Middle-Class Families: About Our Methodology
state tax The research behind our judgments.
By David Muhlbaum Published
-
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck Published
-
Retirees: Your Next Companion May Be a Robot
happy retirement Robots may help fill the gap left by a shortage of humans to help older adults live independently.
By Alina Tugend Published
-
Using Your 401(k) to Delay Getting Social Security and Increase Payments
retirement Your 401(k) can be a bridge from retirement to higher monthly income.
By Elaine Silvestrini Published
-
How Do I Stop Robocalls From Scamming Me?
retirement The scammers have automated their efforts to separate you from your money. We have ways to make it stop.
By Elaine Silvestrini Published
-
A Kiplinger-ATHENE Poll: Retirees Are Worried About Money
Making Your Money Last Concerns about recession, inflation and health care costs weigh on retirees and near retirees.
By the editors of Kiplinger's Personal Finance Published