There can be a ‘survivor’s penalty’ after a spouse dies — here’s how to avoid it

It’s of course very difficult to lose your spouse — and some survivors may also have to deal with the shock of higher taxes after their wife or husband dies.

That’s because after a partner’s death, surviving spouses may face a “survivor’s penalty” due to the shift from married filing jointly to single filing status, potentially leading to higher taxes and increased Medicare premiums.

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The survivor’s penalty is more common among older women, who typically outlive their husbands, experts say.

“That’s what I call the widow’s penalty,” said certified public accountant Ed Slott. 

In 2023, there was roughly a 5.3-year difference in life expectancy between sexes, according to U.S. population data released in December from the Centers for Disease Control and Prevention. Life expectancy was 81.1 years for females and 75.8 for males.

In some cases, these survivors are “hit hard with extra taxes,” Slott said.

Most spouses file taxes jointly, which provides a larger standard deduction and wider tax brackets compared to single filers.

In the year that a spouse dies, the surviving spouse can continue filing taxes jointly with their deceased partner, assuming they don’t remarry before year-end. With a dependent child, you can choose qualifying surviving spouse for up to two years. Otherwise, you’ll use the single-filer status the year after your spouse passes.

While Social Security income may adjust, other earnings could be the same, and the surviving spouse is back at the single tax bracket, Slott said. 

The surviving spouse typically inherits their deceased spouse’s pre-tax individual retirement account and the required minimum distributions, George Gagliardi, a certified financial planner and founder of Coromandel Wealth Management in Lexington, Massachusetts, previously told CNBC.

“The larger the IRAs, the bigger the tax problem,” he said.

However, married couples can plan for this in advance, experts say.

You can address the life expectancy gap and possible tax consequences for the surviving spouse with assistance from a financial advisor, experts say.

That could include multiple years of tax projections for different scenarios to find out whether it makes sense to incur taxes sooner while both spouses are still living.

“You’re aiming to pay taxes when your rate is the lowest,” said CFP Jeff Levine, a certified public accountant and chief planning officer at Focus Partners Wealth in Clayton, Missouri.

In some cases, you may pay less taxes overall by withdrawing funds from pre-tax retirement accounts sooner, such as early retirement before starting RMDs, advisors say.

You could also weigh Roth IRA conversions in the year of the first spouse’s death, Slott said.