In 2025, National Estate Planning Awareness Month is in October. The official week is October 20-26th! There are many components to the estate planning process, and today I am highlighting the “Widow’s Tax”.
Moneywise recently posted an article about a “widow’s tax” that caught my eye. Reading it, I wanted to ensure you were all aware of it to help you in your overall planning process when speaking with an estate planning attorney, a financial planner, or a wealth manager.
Losing a spouse changes so much. As you are grieving, facing financial changes, creating a hardship can be devastating. You could end up with less income and a higher tax bill — a financial blow on top of an emotional one.
Digging in, I confirmed the “widow’s tax” applies to all legally married couples, as the federal government treats all legal marriages equally for federal benefits. The widow’s tax penalty refers to the potential increase in tax liability that occurs when a surviving spouse’s filing status changes after their partner’s death.
The year your spouse dies, you can still file a joint tax return. The following year, you may qualify as a Qualifying Surviving Spouse — but only if you have a dependent child and meet other criteria. If not, and especially if you’re an empty-nester, you’ll have to file as single or head of household.
This change can significantly impact your taxes: you may face a lower standard deduction, a higher marginal tax rate, more of your Social Security benefits taxed, and potentially trigger Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharges.
Image by Daniel Battershell from Pixabay
Ways to Minimize the Financial Impact
Short of remarrying, the “widow’s tax penalty” applies. However, there are ways to mitigate its financial impact.
The most effective strategy is to plan ahead. When creating your retirement plan, include scenarios where one spouse passes first. Consider how that would affect income needs, tax brackets, and filing status. This allows you to stress-test your retirement plans for survivorship risk.
Work with a financial planner or tax advisor to ensure both spouses are prepared. Here are some suggestions to consider.
Roth conversions: Converting traditional IRA assets to Roth IRAs while filing jointly can lock in today’s lower tax rates and reduce future Required Minimum Distributions (RMDs).
Delay Social Security: Waiting to claim benefits can increase the survivor benefit, ultimately providing more income to help offset the higher tax burden.
Strategic timing of large financial moves: If you’re planning to sell property or realize large capital gains, consider doing so in the same year your spouse passes, while you’re still eligible for joint filing. That can reduce your exposure to capital gains taxes.
Estate and gift tax: Surviving same-sex spouses can take advantage of the unlimited marital deduction, which allows assets to be transferred from the deceased spouse to the survivor free of estate or gift tax.
Stepped-up basis: When a surviving spouse inherits property, they receive a “stepped-up basis” on that property. This adjusts the property’s cost basis to its fair market value on the date of death, which can significantly reduce capital gains taxes if the property is later sold.
Image by John Hain from Pixabay
Take a Breath
Planning for death is uncomfortable. Like estate planning, preparing for this scenario can ease the financial burden on your loved ones and provide greater peace of mind.
It’s the peace of mind and relief that matters to me for you. I know all these details are a lot to take in. As I’ve learned over the years, practice makes perfect!
If you’d like to plan for the future and discuss what’s involved, feel free to Book a Time with Lynn to connect via Zoom to discuss your particulars.
If you prefer to Email, I’d be happy to hear from you! Or feel free to Book a Time with Lynn to connect via Zoom for 30 minutes.
For additional information about my work, check out @ The Living Planner or @ The Living Planner. If pre-planning is on your agenda, my book is a resource for you. The Living Planner What to Prepare Now While You Are Living © Check it out HERE.
Quote for the week: “Do your little bit of good where you are; it’s those little bits of good put together that overwhelm the world.”- Desmond Tutu
Be aware and know it’s ok to ask for help! Lynn
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