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How the Widow Tax Changes a Retirement Plan · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, How to Retire On Time. Take a look. So alright.
• 0:12
  We got five minutes. One last question.
• 0:14
  David: Okay. Here we go. And we may have touched a little bit on this. Can you explain how you handle the widow tax?
• 0:23
  Mike: Yeah. So the widow tax is the understanding that when a spouse passes, the surviving spouse is going to roughly need the same income, but it can get taxed about twice as much. That's a problem. In situations where you've saved more than probably you needed, getting IRA to Roth conversions underway is a very beneficial thing. Because you want to hit not life expectancy, but like not 86 years old or so, maybe like late seventies, that if you were if a spouse were to pass, the RMDs, the required minimum distributions, that's a mouthful every Mhmm.
• 1:03
  Mhmm. Those RMDs are gonna keep you within a certain threshold, and that threshold is gonna allow you to kind of hit the same effective tax rate. What does that mean? Let's say you've got, I don't know, 500 k that you're doing Ira to Roth conversion, you're more aggressive. Okay.
• 1:22
  That means that you want these these surviving spouse to have 200,000 or less of an RMD, and about 40,000 or less of Social Security to have the same effective tax rate. And different families, different thresholds, the standard deduction is a constant kind of in some sense, but this is the foresight, the thought that you need to address in retirement planning, because you don't want the surviving spouse basically lowering their income because the RMD has pushed them into a higher tax bracket, and they're just getting destroyed in taxes. So, they ultimately are getting less out of their money. It's a very unfortunately common problem.
• 2:00
  David: Yeah. And then part of it is the you go from having married filing joint standard deductions, right, to just the single.
• 2:08
  Mike: Single brackets.
• 2:09
  David: That's one of the biggest reasons. Is that why?
• 2:12
  Mike: Yeah. Yep. Gosh.
• 2:14
  David: I wish somebody could help with that.
• 2:16
  Mike: Well, I'd love some administration. I'd love an administration that says if you've been married longer than ten years and your spouse passed after the age of 65 or something like that, that you're able to the married, family, jointly bracket. Right. Just some relief to the widow. It's already hard enough, and healthcare costs are insane.
• 2:36
  So for all those who are tuning in right now going, Hey, this great. What's the next step? I'd say come to our workshop. It's this Tuesday night at 06:30 central time. We're hosting it on Zoom, so you can attend from the comfort of your home.
• 2:49
  Just go to retireontime.com/workshop to RSVP. That's retireontime.com/workshop. We'll see you there. That's all the time we've got for today's show. If you enjoyed the show, thanks for tuning the podcast.
• 3:01
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