Since the Supreme Court legalized gay marriage in 2015, more than a million same-sex couples have tied the knot.
Yet, love and marriage comes with much more than a day filled with vows, dancing and cake. It comes with a lifetime of financial considerations for the future. For example, this may be only the beginning of saving toward your retirement as a couple, setting up a joint bank account, and working toward your other money goals.
If you have questions about how to best navigate your finances as part of a same-sex married couple, you’re not alone. For example, typical questions include: Can you save money by getting married? Will your tax rate plummet once you tie the knot?
To answer your money questions, we turned to Robert Castillo, an investment advisor and accredited domestic partnership advisor at Gerber Kawasaki, an investment management firm based in Santa Monica, Ca.
Castillo talked us through the money-related aspects of married life for same-sex couples. Read on to see how walking down the aisle could affect your financial future.
“There’s been a study done, and about a third of same-sex couples who have married between 2015 and 2018 still have questions about their taxes—whether to file joint or single, or how to file,” says Castillo.
Castillo cautions against the assumption that marriage always means lower income taxes, which he says is one of the biggest misconceptions about matrimony.
“There’s something called a marriage penalty. If two people are high-income earners, they actually end up paying more taxes than if they were single,” Castillo says.
Thankfully, the so-called marriage penalty doesn’t apply to all spouses. If one partner earns considerably less than the other, this usually leads to overall tax savings for the married couple, Castillo says.
Indeed, you shouldn’t let a tax increase deter you from getting married. There are still other financial perks of your nuptials that can make up for the uptick in income taxes, he says.
“There are over 1,100 federal benefits allotted to married couples,” Castillo says.
First, here’s the bad news: If two high-income earners get married, they may not qualify for a Roth IRA with their combined income.
A Roth IRA is a type of retirement plan that allows you to contribute money after taxes and withdraw your earnings tax-free upon your retirement. With a traditional IRA, on the other hand, you contribute pre-tax earnings, yet you won’t be taxed on any of your investment gains until you withdraw funds. For both types of IRAs, the contribution limit per person in 2019 is $6,000 if you’re under 50. However, with Roth IRAs, there are limitations on what high-income individuals can contribute. For example, married couples filing jointly cannot make Roth IRA contributions if their combined income exceeds $203,000.
Here’s something else to know: If you have both a traditional IRA and an employer-sponsored 401(k) plan, you can’t deduct traditional IRA contributions from your taxes after a certain income limit. For married couples filing jointly, that limit is a combined income of $123,000.
Now, the good news: Marriage makes it easier for one spouse to pass retirement savings to the other if one passes away. If you’re the surviving spouse, you have the option to absorb your deceased spouse’s 401(k) into your own or claim your partner’s traditional IRA as your own. If your spouse had a Roth IRA, you can also claim it as your own if you’re the sole beneficiary.
All told, marriage makes it easier to deal with the unexpected and still have a comfortable retirement nest egg, Castillo says.
Pensions and Social Security
Marriage offers big-time benefits to the spouses of pension holders. A pension is a type of retirement plan where an employer does all the contributing and investing on behalf of an employee (although some plans allow for optional employee contributions). The employee then collects payments monthly or in a lump sum upon retirement.
Pensions are rarer now than they were a generation ago, but if you’re a teacher, government employee, work in law enforcement or work in other particular professions, you may still be able to reap the benefits of this type of retirement plan. And, if your spouse has a pension and were to pass away, that pension may go to you. What does this mean? It means that you, as the surviving spouse, may be eligible for a lifetime of payouts, depending on the plan. What’s more: This benefit is not available to non-married couples in a domestic partnership.
Here’s another financial perk of marriage: It can boost your social security payments. Social security is a topical subject as many have predicted the demise of this government program. However, American workers in all industries still receive credits for every $1,260 they earn, up to four credits per year. As it stands now, upon retirement, you can start receiving monthly social security payouts. Here’s an online calculator where you can see an estimate of your future monthly social security checks. If you’re married, you stand to receive 50 percent of your spouse’s social security payments or 100 percent of your own, whichever is higher.
Writing a Will
If writing vows seems more appealing than writing a will, you’re in luck: Marriage lessens your need for a will.
In community property states like California, all assets accumulated during the marriage belong equally to both spouses. If one spouse passes, then the assets automatically go to the surviving spouse.
“If a couple isn’t married, they absolutely need not just a will, but also a living trust. It’s not cheap, but it definitely saves a lot in probate taxes later on,” Castillo says.
An Individual Choice
The financial benefits of marriage are clear, but even so, not every couple needs to rush to the altar.
“I don’t try to convince my clients to get married or not. I just give them the numbers,” Castillo says.
With the information above, you’ll have an easier time deciding whether marriage is a smart financial choice for you and your partner. But, no matter what you decide to do now or in the future, we can all celebrate marriage equality. Happy pride!