Your taxes could increase as a widow or widower.
No one likes to think about his or her own death.
It can be even more uncomfortable to consider the death of a spouse.
Unfortunately, it is something you should consider.
According to a recent Kiplinger article titled “How Losing a Spouse Could Boost a Survivor's Taxes,” a lot will change when your spouse dies.
First, you will lose income.
Instead of receiving two Social Security payments, you will receive just one.
And it will be the larger of the two incomes, but it will still be a single income.
If you were not included in the pension benefits for your spouse, you may lose this as well.
In addition to loss of income, you will have an increased income tax.
You will be filing under single status rather than jointly.
More than half of your standard deductions would disappear.
As a result, you will have more taxable income.
With this greater income, you will be taxed at a higher rate.
Do you have money in tax-deffered accounts such as a traditional IRA, 401(k), or 403(b)?
If yes, then this money will be 100 percent taxable when you make withdrawals.
Are there any actions you can take to minimize this burden?
If your spouse had a life insurance policy, you could use the payout to pay taxes on a rollover from a traditional IRA to a Roth IRA.
You should do this the year your spouse dies.
During this year, you can still file "jointly" as a married individual.
What good does rolling over to a traditional IRA make?
It will enable you to defer taxes on distributions after holding the Roth IRA account for five years.
Also, once you turn 70½, you will not have required minimum distributions.
This gives you more control over your taxable income.
Your tax bill will be reduced every year thereafter.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger (October 13, 2017) “How Losing a Spouse Could Boost a Survivor's Taxes”