A Spouse’s Death Can Complicate Retirement Plans

About 1.5 million Americans become widows and widowers each year.

When a spouse passes away the smaller of their two social security income streams ends. Additionally, pensions will also often terminate or be substantially reduced at the death of a spouse.

However, even with less income, the surviving spouse may wind up in a higher tax bracket because single filers are in higher tax brackets. For example, a married couple filing jointly with $80,000 of income is in the 12% tax bracket. However, if one spouse dies, and the surviving spouse’s income drops to $60,000 after the loss of social security or a pension, the newly widowed spouse will be in the 22% tax bracket the year after the spouse passed away. This is one of the reasons it may make sense to partially convert Roth IRA accounts while both spouses are still alive.

Singer Wealth

Keith Singer, JD CFPTM

Keith Singer Singer Wealth 2 Locations:

1515 S. Federal Highway, #211, Boca Raton, FL 33432

20900 NE 30th Avenue,

Suite 600, Aventura, FL 33180 Phone: 561-998-9985

Website: www.singerwealth.com

Email: Keith@singerwealth.com

If a surviving spouse is considering selling their primary residence, they will have two years from date of death to include spouse’s exemption which would exempt $500,000 of capital gains from taxes. After that deadline, only $250,000 will be exempt.

The current estate- and gift-tax exemption is $11.7 million per individual. The surviving spouse may want to file an estate tax return even if their estate is much less than that because they can add it to their own exemption and they will continue to have that exemption amount even if Congress subsequently lowers it.

There is one tax benefit to one’s death. Appreciated assets like stock and real estate receive a “Step up” in basis at the death of the owner. That means the heirs can sell that appreciated asset and the capital gains will only be based on any price appreciation that occurred after death. Joint property receives a 50% step up at the death of the first spouse. If one spouse has a short life expectancy, it may make sense to transfer highly appreciated assets to that spouse to capture a 100% step up.