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A RECENT post by achnk53 about the impact of a spouse’s death on the survivor’s taxes piqued my interest. The post referenced an interesting Kiplinger article about the “Widow’s Penalty”, or the negative tax implications on a surviving spouse after the death of a spouse. A surviving spouse can file Married Filing Jointly (MFJ) in the year of their spouse’s death. In the full year following the spouse’s death you must file Single. There are some beneficial filing rules for surviving spouses who have dependent children, but that is beyond this post.
Nine days later John Urban published an article running the tax numbers for 3 different retiree scenarios, and using the data to provide some excellent suggestions for readers. In between these two articles I had run some similar case studies to understand the impacts.
I ran some case studies using the 2026 Dinkytown 1040 Calculator. I considered a “lower” income retired couple. The impact of one spouse passing is very dependent on the sources of income. Assume the retired couple were each receiving $36,000 in annual SS benefits. They have no other sources of income. The couple filing jointly would have no taxable income, and no tax for 2026. Had the husband died in 2025, the surviving widow would have seen her income reduced to $36,000. If she needed the lost income, and found a job that paid $36,000, her income would match the original $72,000. But $21,500 of her SS benefit would be taxable, her taxable income would be $33,350, and her annual tax bill would be $3,757. The table below shows the details of this analysis:
After accounting for the reduction in Medicare related spending, she has similar spending power. But she had to go back to work to achieve that. This, and the previous examples, reinforce the importance of understanding a couple’s financial details before and after the passing of a spouse. Income will likely be reduced, but expenses may also be reduced. Lower income retirees who depend primarily on both partners SS benefits may see the biggest impact.
I also ran a comparison of our tax return for 2026, for both MFJ and if my wife filed single. I assumed our income consisted of my pension, my wife’s SS benefit, and my SS benefit had I claimed it on January 1, 2026. When I die my wife will receive 75% of my pension, and my higher SS benefit. The results were not surprising.
I then ran an additional scenario with the same assumptions, but also assuming we were 4 years older and would both have to take initial RMDs in 2026. This scenario reflects one of the concerns frequently expressed when discussing this topic – what happens when the surviving spouse is responsible for reporting the income from both RMDs on her Single tax return. The results changed to reflect the scenario.
These results are a simplified look at our finances today. My pension and my wife’s SS benefit cover our non-discretionary, and a decent portion of our discretionary, expenses. The wild card is travel – how much we spend in any year is our choice and may require additional income. I’m about 11 months from claiming my SS benefit, at which point virtually all of our expenses will be covered in a fairly tax-efficient way. RMDs are still 4 years away.
This was a good exercise to get a feel of how my demise would impact my wife’s finances. It would have some financial impacts, but I believe our plan can handle them. I’m considering running some more detailed projections varying the age at death to assess the impacts, but a quick look made me reasonably confident our retirement savings will be adequate, even considering long term care. I will also continue to look at Roth conversions each year.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.
Thanks Rick.
I was happy to see a link to your article in today’s newsletter from Rob Berger.
I am also continuing to look at Roth conversions this year or early 2027 in my current planning. As bond yields continue to surge the market value of my previously purchased TIPS that I still hold are currently decreasing in market value but I also know that if I hold them to maturity that I should get the future value they promised when I purchased them. The taxable amount of a TIPS in a Roth conversion is determined by their market value at the moment of conversion, not their inflation indexed value.
As David Enna writes on TIPSwatch in TIPS in Depth –
The real yield of any TIPS is constantly changing, based on market sentiment. But the important factor is: When you buy a TIPS you plan to hold to maturity, you have set in stone your real yield to maturity. The market may reprice that TIPS, but your real yield doesn’t change, unless you sell before maturity.
On 10/15/2022 Jonathan Clements posted his “My Investment Sin” article about his $80K Roth conversion as he was trying to make the most of 2022’s stock market slump. I am thinking about making additional Roth conversions to make the most of the 2026 bond market slump. As I am already at my initial 2026 taxable income target from previous 2026 Roth conversions the current bond value slump will still have to materially decrease the market value of my held TIPS in my traditional IRA or other unknown changes would have to occur for me to choose additional Roth conversions in 2026. Like you, the key factor to my final decision will be how my decision could impact my wife’s finances if I should die unexpectedly sooner than I think.
Best, Bill