New Financial Planning Considerations for Same-Sex Married Couples

Table for a party

With more states allowing same-sex marriage or honoring out-of-state same-sex marriages, legally married same-sex couples enjoy more than 1,000 new rights and benefits.  Some matters can be complicated if you live in a state that does not allow or recognize same-sex marriage, so it's important to discuss your individual situation with your financial advisor to ensure you understand your rights. If you and your partner are married or making wedding plans, you should be aware of important tax, benefit, estate planning and other changes that may affect your financial situation.



Deductions and exemptions

Married same-sex couples are now treated equally in many ways when it comes to a number of tax deductions and exemptions. Personal and dependent exemptions, traditional individual retirement account (IRA) contributions, the earned income tax credit, and the child tax credit are now recognized at the federal level. You may also file jointly and itemize your deductions.

Health insurance

As of September 16, 2013, health insurance purchased for your same-sex spouse can be done on a pre-tax basis, which lowers your taxable income. Previously, same-sex couples could only purchase such coverage on an after-tax basis.

Marriage penalty

High-earning spouses may face the so-called "marriage penalty," in which your where the combined tax bill is higher than if each spouse filed separately. However, jointly itemized deductions could offset the tax owed. If you were married for all or part of the last three years and jointly itemizing your deductions would have resulted in a lower tax bill or refund, you can file an amended tax return to request a refund of the overpayment. Typically, this can be done up to three years after the date the return is filed or two years from the date the tax was paid, whichever is later.
Employee benefits. Legally married same-sex couples can participate in employee benefit plans, even if the state where they live does not recognize same-sex marriage and health insurance can be purchased with pre-tax dollars.

Retirement planning

Same-sex spouses now have equal treatment when it comes to IRAs and qualified retirement plans. In addition to spousal interest in the plan, minimum distribution rules apply. Marriage may also affect how you treat your beneficiary designation forms. If you are a spouse in a same-sex marriage, you should review your beneficiary designations, and how those matters are coordinated with your broader estate planning. Remember that it is your beneficiary designation form and not your will that dictates who receives these assets after you die.

Children

Providing for children requires additional planning. In states that recognize same-sex marriage, both partners are typically granted parental rights. In cases where the partners are not married, or where same-sex marriage is not recognized at the state level, only one partner may be recognized as the child's parent. In this situation, your estate should include special planning to ensure your wishes for the care and custody of your children are clearly stated.

Gift and estate taxes

Legally married same-sex couples now enjoy the same federal gift or estate tax benefits as heterosexual married couples. Primarily, those benefits include an unlimited gift or estate tax marital deduction for any amounts passing to a spouse, either as an outright gift or in a trust that qualifies for the unlimited marital deduction. If you're not married, the current gift or estate tax threshold may apply to asset transfers upon your death. The threshold is $5.34 million in 2014.

Recent legislation and an IRS ruling allow "portability," which means that if a deceased spouse has not fully used his or her estate tax exclusion amount to shelter taxable transfers at the time of his or her death, any unused amount can roll over, or "port," to the surviving spouse. Just as with personal claims for personal income taxes you can now file refund claims for personal incomes taxes, you can also file refund claims for gift or estate taxes within the same statute of limitations.

Changing Landscape

Treatment for same-sex couples on federal tax, retirement and other financial issues continues to evolve. Be sure you are working with a financial advisor, accountant and tax lawyer familiar with this development landscape.

Need Financial Help?

Phone ringing Call us 800-842-2888

Phone with arrow Schedule a callback

Circular people graphic Attend a meeting or seminar 

Experiencing a Life Event?

Tools & Calculators

See all 

Financial Essentials
Workshops & Webinars

  • Tomorrow in Focus: Saving for Your Ideal Retirement
  • Money at Work 1: Foundations of Investing

See all 

Help to reach your goals

Get answers to your IRA questions.

Learn more

C12485