Penalizing the Widow/Widower (taxes)
The more I write about this particular subject (widows), the more I learn. I never thought I would be sharing about taxation. I had no clue about many of the things widow/widowerhood and the stuff they have to endure after a spouse passes away.
The “widow’s penalty” occurs when a person’s tax filing status goes from married filing jointly to single. This change can cause the surviving spouse to have to pay nearly double the taxes compared to what they were paying. I can see why this could cause some financial woes. The money is still there, but the tax shelter has been changed to “single.”
In the pyramid of stressful life events, losing a spouse consistently ranks as the most traumatic crisis most individuals will ever experience. It’s not uncommon for widows and widowers to feel confused and fearful, or even guilty that they didn’t die first. This is a huge (likely the main one) reason that financial advisers often recommend that surviving spouses postpone making major financial decisions (such as selling the house), until they’ve had time to process the loss.
I’ve recently stumbled upon this next detail.
EX: In 2024, a married couple who filed jointly with up to $383,900 in taxable income qualify for the 24% tax bracket, but a single filer with the same amount of taxable income will jump into the 35% tax bracket.
I am not very strong when it comes to the taxes and how they are managed, but I also found this out. “The tax scenario in our country assumes a single person makes half of what a married couple make, but it’s not that way in real life.” I kinda knew that already, but did not understand it.
This is cool right here! “As a surviving spouse, you have the option of rolling your deceased spouse’s IRA (or IRAs) into your own IRA, which will postpone required minimum distributions if you’re younger than 73.”
My wife and I were able to do something like this when we were changing employers, but THIS is and can be a big help for surviving spouses.
Eventually, though, you’ll have to take RMDs (Required Minimum Distributions) from the combined account and pay taxes on the withdrawals. Again, I am learning this stuff, so I am sharing this stuff. If this defines you, your spouse is ill, or your parents are being assisted by you, get a good and reputable tax rep, pray and look into the ways you can be assisted in this area.
IMPORTANT NOTE: In addition to shifting you into a higher tax bracket, those distributions could “trigger a high-income surcharge on your Medicare Part B and Part D premiums. Even if you put off RMDs, “this is a tax that has to be paid,” Slott says. “It’s not if, but when.”
The widow’s penalty occurs when a surviving spouse’s tax status reverts from married filing jointly to single. If you’re a widow or widower, you can file a joint tax return for the year of your spouse’s death, but after that, you’ll be required to file as a single taxpayer unless you have dependent children (surviving spouses with dependent children are eligible for the benefits of joint filing for up to two years after the death of the first spouse).