The “widow’s tax penalty” increases taxes on lesser income after your spouse dies — why you should plan for it now

Losing a spouse is emotionally devastating — and for many widows and widowers, it can also lead to unexpected financial hardship.

One of the main reasons is the “widow tax penalty,” a little-known tax consequence that can increase the tax burden and reduce income after the death of a spouse.

Here’s how this penalty could significantly impact your retirement funds.

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.

In the year your spouse dies, you can still file jointly. 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, especially if you are an empty-nester, you will have to file as an individual or head of household. (1)

This change could significantly impact your taxes: You may experience a lower standard deduction, a higher marginal tax rate, tax more of your Social Security benefits, and possibly result in an additional charge to your income-related monthly adjustment amount (IRMAA).

In short, you could end up with less income and a higher tax bill, which is a financial hit as well as an emotional one.

Take, for example, a retired couple with an annual income of $120,000. When filing jointly, your effective tax rate can be about 16.3%. After the death of a spouse, the survivor may still need about $100,000 to maintain their lifestyle — but must now file as single.

As a result, the effective tax rate may rise to 21.5% or more.

In this case, the survivor faces a decrease in income and a higher tax rate – simply because of the change in filing status.

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Short of remarriage, there is no way to completely avoid the widow’s tax penalty. However, there are ways to mitigate its financial impact.

The most effective strategy is to plan ahead. When creating your retirement plan, include scenarios in which one spouse passes first. Consider how this affects your income needs, tax brackets, and filing status. This allows you to test your retirement plans for survival risks.

Work with a financial planner or tax advisor to ensure both spouses are prepared.

Here are some ways to reduce the tax burden on the surviving spouse:

Roth Conversions: Converting traditional IRA assets to Roth IRAs while filing jointly can lock in lower tax rates today and reduce required minimum distributions (RMDs) in the future.

Social Security delay: Waiting to claim benefits can increase survivor benefits, ultimately providing more income to help offset the higher tax burden.

Strategic timing for large financial moves: If you plan to sell a property or realize a large capital gain, consider doing so in the same year as your spouse, while you are still eligible to file jointly. This can reduce your exposure to capital gains taxes.

The widow’s penalty is one of the most overlooked risks in retirement planning — likely because death planning is inconvenient. But just like estate planning, preparing for this scenario eases the financial burden on your loved ones and provides greater peace of mind.

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This article provides information only and should not be construed as advice. They are provided without warranty of any kind.