Thursday, May 29, 2014
Although a couple may pay more taxes together than if they were single, there are countless financial benefits to marriage. For example, it is still cheaper for two people to live together than live apart. Getting married allows you to pool risk; one instance being if you lose your job but your spouse still works, it is easier to cope financially than if you were single. Marriage can also ease the sting of state and federal estate taxes.
There are also two other financial benefits to getting married including social security and individual retirement accounts.
- Social Security. If one spouse has significantly lower lifetime earnings than the other spouse, claiming Social Security benefits can create confusion. “One of the best strategies is to apply and suspend…At his or her full Social Security retirement age, the higher-earning spouse applies for benefits and immediately suspends. That allows the lower-earning spouse to claim spousal benefits. The higher-earning spouse then delays benefits to age 70.”
- Individual Retirement Accounts. If you inherit an IRA, the best strategy is to make use of the “stretch IRA.” This involves withdrawing only the minimum sum required by the IRS each year, so you get maximum benefits from the traditional IRA’s tax-deferred growth and from the Roth’s tax-free growth. Here, spouses have the advantage. If you leave your IRA to someone other than your spouse, the beneficiary must draw down the account beginning the year after your death, and the minimum withdrawal is based on the IRS’s single-life expectancy table. However, if your husband inherits your IRA, he can treat the IRA as his own. Thus, required minimum distributions can be delayed until age 70 ½ and then the account is drawn down using the uniform-lifetime table, which involves smaller distributions. Moreover, for Roth IRAs, your spouse would not have to take any distributions during their lifetime.
See Jonathan Clements, Why Getting Married Can Be A Financial Windfall, The Wall Street Journal, May 27, 2014.