We often forget that Marriage is more than romance. We recently had several questions about whether it would make sense financially to get married, instead of living together. This week the House passed the Respect for Marriage Act with bipartisan support, which safeguards the right to same-sex marriage nationwide, and now awaits a Senate vote. This compelled us to examine some of the financial benefits of marriage:
- TAX FILING- Married Filing Jointly has higher tax brackets and can be advantageous if there is a difference in income. A couple’s combined income may well place them in a lower tax bracket than the higher-income spouse would pay as an individual. The so-called marriage penalty (where your overall tax bill increases) can still come into play if both spouses have similar incomes.
- IRA ACCOUNTS— The annual income limitations for IRA/Roth IRA contributions are based on joint income, allowing for far higher savings. A non-working spouse can contribute to an IRA as long as the working spouse has enough earned income to cover the contribution. These contributions will have the opportunity to grow tax deferred and may also be a deduction.
- – Beginning in 2020, if you inherit an IRA from your spouse, you can basically treat it as your own and postpone taking required minimum distributions until the year you turn 72, potentially giving your assets more time to grow tax-deferred.
- 401k Distributions – Spousal interest in 401ks is well protected. As a general rule, married participants must receive the written consent of their spouse prior to taking distribution from a qualified plan in a form other than a qualified joint and survivor annuity (QJSA). A spouse also needs to sign for consent when assigning another beneficiary.
- INSURANCE —If you have separate health insurance policies, either through your employers or independently, getting a family policy from a single provider may be a much better deal.
- If each spouse has a different employer, each can choose the better of two health insurance plans.
- When an unmarried person includes a partner on their health insurance plan, that benefit is taxable. For married couples, premiums to cover both are tax deductible.
- Car insurance and home insurance coverage are cheaper for two than for one.
- As a married couple, you can typically bundle homeowners, car and umbrella policies, potentially bringing premiums down. Not every automobile insurance company allows domestic partners to share a policy.
- Long-Term Care—Married couples or those with a committed partner may be able to save on premiums with ‘couples discounts’ even if only one party is approved. The savings are greater if both members purchase policies.
- SOCIAL SECURITY—You become eligible for Spousal Benefits: ½ of the higher paid spouse’s social security benefit. In the long run, the lower-paid spouse may be eligible for a larger benefit than the person’s solo income would allow.
- If a divorce is in the cards, after 10 years marriage, each spouse can apply for spousal benefits and survivor benefits based on the other spouse’s earnings.
- Social Security survivor benefits serve as an excellent life insurance policy. Nine months are required for survivor benefits, but it is waived in case of accident. The surviving spouse receives Social Security survivor benefits based (which includes children before they turn 18) on the deceased spouse’s record.
- HOME OWNERSHIP—lender will consider the financial status—credit score, income, assets, liabilities—of both of the applicants regardless of marital status. On the other end, when selling, a married couple with joint ownership gets a capital gains exclusion of up to $500,000; a single person can only exclude $250,000.
- There are big risks if both your names are not on the title of any property you own together. The unnamed partner is vulnerable in case of splitting up, divorce or death. Deciding how you will own a home has significant and lasting consequences. For estate planning purposes, you may also want to discuss with an attorney whether setting up a trust makes sense for your situation.
- ESTATES AND GIFTING—The IRS seems to smile on marriage when it comes to gift and estate taxes. Married couples can transfer an unlimited amount of property to each other free of any reporting or gift tax. They can also use “gift splitting” to essentially double the amount they can jointly give to a third party.
- A married person can generally leave an unlimited amount of money to their spouse without paying any estate tax. In addition, the surviving spouse can use any unused portion of the deceased spouse’s lifetime estate tax exclusion upon his or her death. Under current law (2022), this means that a married couple can pass on up to $24.12 million free of federal estate tax.
- GOVERNMENT AND VETERAN BENEFITS—A spouse may also be eligible for a variety of employee, veterans and federal government benefits. For example, when it comes to military and veteran benefits, a military spouse may be eligible for healthcare and family separation pay. In addition, spouses of deceased veterans may be entitled to benefits such as healthcare, educational assistance, home loan guarantees and pensions.
- There’s also a broad array of benefits for spouses of federal government employees, including health, retirement and survivor benefits. Couples who are in a civil union or other forms of domestic partnership other than marriage are ineligible for most benefits.
While money should never be the reason to marry, it can be a financial plus. Just make sure you and your partner understand and agree on how you’ll share responsibilities, combine finances and pass your money values on to your children. That’s most important—whether or not you decide to marry.
Markets
While markets were up for the month of November, US markets were down for the year to date. International markets and oil also had a good November and a down year. The start of December is a different story. While the Federal Reserve reassured investors that they have a goal to achieve a “soft landing” for markets and consumers, the strong jobs report sent markets tumbling again. And the volatility continues until the Federal Reserve feels that interest rates are high enough to stop inflation’s uncontrolled growth.
Wishing you the Joys of the Holiday Season.
Anja & Clare
