Andrew Bret Wallis | The Image Bank | Getty Images
After a spouse dies, some retirees face a costly surprise — higher taxes.
Couples, however, can reduce the burden with early planning, financial experts say.
The shift from married filing jointly to single on future tax returns can trigger a “survivor’s penalty,” depending on whether your income changes.
“Not only does a surviving spouse face potential higher taxes in the single bracket, but it may also increase their Medicare Part B and D premiums,” said certified financial planner Judy Brown, a principal at SC&H Wealth Advisors, which is based in the Washington, D.C., and Baltimore metropolitan areas.
For the year of death, a survivor can file “married filing jointly” with their deceased spouse, unless they remarry before the end of the tax year.
After that, older survivors typically use the “single” filing status, which may have higher tax rates, with narrower tax brackets and a smaller standard deduction.
The brackets use “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
For 2024, the standard deduction for married couples is $29,200, but single filers can only claim $14,600. The IRS recently unveiled higher tax brackets and standard deductions for 2025.
With these differences in mind, here are some ways to reduce taxes for surviving spouses, according to advisors.
Start with a ‘tax projection’ for survivors
“The first step is doing a tax projection for each spouse” to see how income, deductions and other factors could impact future taxes, depending on which spouse passes first, said Brown, who is also a certified public accountant.
After running the numbers, you can pick which tax strategies to use for each spouse, she said.
The survivor’s penalty affects American women more often than men, because women are more likely to outlive male spouses. In 2022, there was a 5.4-year life expectancy gap between U.S. sexes, according to the latest data from the Centers for Disease Control and Prevention.
Prioritize taxes in lower brackets
Often, couples have temporary lower brackets in early retirement, after leaving the workforce but before they start taking Social Security and required minimum distributions.
“One of the best ways to minimize the survivor’s penalty is to prioritize paying taxes in the lower married filing jointly tax brackets, especially in early retirement,” said CFP Judson Meinhart, director of financial planning at Modera Wealth Management in Winston-Salem, North Carolina.
You can do this by taking withdrawals from pretax retirement accounts earlier or leveraging Roth IRA conversions to “strategically fill up lower tax brackets” in those lower-earning years, he said.
However, increasing your income can cause other tax consequences, such as higher taxes on Social Security, capital gains and more.
Source link
