Decrease the Impact of the Widow’s Penalty with Roth Conversions

As women live longer and accumulate more wealth, the Widow’s Penalty is becoming more costly. 

While both spouses are alive, most file as Married Filing Jointly (MFJ). 

Once a spouse dies, the surviving spouse files as Single. 

The single tax rates use roughly half of the taxable income of the MFJ tax brackets. 

The single standard deduction is also cut in half as well as income thresholds. 

The bottom line is the surviving spouse is pushed into a higher tax rate as much as 10% a year plus Medicare premium surcharges. 

Strategically doing Roth conversions* while both spouses are alive and taking advantage of the favorable MFJ status, will reduce IRA balances and lower required minimum distributions (RMDs).

Ideally, this will mitigate the effects of the Widow Penalty and lower the tax bill and Medicare premium surcharges for the surviving spouse. 

*Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.