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I read this article from Kiplinger online about the four ways couples should prepare for the Widow’s Penalty.
https://www.kiplinger.com/taxes/tax-planning/how-to-prepare-for-the-widows-penalty
The article states that in an unfortunate twist of the tax system, losing a spouse may trigger a huge financial hit called the widow’s penalty. The good news – you can plan for it. It is a good read. Your thoughts and your plan.
Thanks for a great review article. I had always thought of Roth conversions as providing three benefits: 1) Lowering RMDs when we turn 73, 2) converting all of my wife’s lower (1/3 of our total traditional IRA’s balance) to simplify RMDs to only one account, 3) tax free inheritance for my children.
Now I realize there is a fourth benefit, reducing my wife’s taxable income, when I most likely pass first, thus reducing the IRA widow’s tax.
That was a good article. I thought I knew the territory well, but the suggestions about what to do are worth considering. For example, I had considered Roth conversions for various reasons, but not specifically for providing a pot of tax-free money for the surviving spouse.
We both have term life policies that end the year we turn 69, about six months before my husband turns 70. I’ll file for SS at 67, but he’s planning to wait until 70. Those policies are a hedge against him not making it to 70. But taking out new term policies specifically for the purpose of replacing the second SS is also an interesting idea. It wouldn’t have to be a ridiculously huge policy.
Anyway, it gave me something to think about, so thanks for sharing it!
Also think of the Roth conversions as a way to hold down the size of the RMDs for the surviving single survivor. We’ve been aggressively doing Roths for a number of years—during which the stock market returns have been very good. Without those conversions whichever one of us is left would face huge RMDs while filing as single. And the multiplier for calculating the RMDs also increases with age.
Our plan right now is finishing up Roth conversion this year before RMD. I have delayed to claim of my SS benefit until 70. Our IRMAA surcharges will be gone by next year. Our portfolio has our income floor as keeping up with inflation, so we are about 70% US stocks, 10% international ETF, 15% Bond ETFs, and 5% cash. We have never thought about term life insurance and at our ages this may not be advisable.