Will the widow/er suffer from a tax hit? Maybe not.

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McQ
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Will the widow/er suffer from a tax hit? Maybe not.

Post by McQ »

[Title edited 8/5/2021 about 8:30pm Pacific. To understand why, read the posts from delamer on the first page through retiringwhen on the second page, and my later response to retiringwhen a bit further down. Slight edits to the text below.]
In an earlier forum on Roth conversions I learned that many BH worry about the tax situation of their widowed spouse—and worry may not be strong enough to capture the emotion. Not a few BH are assiduous tax planners, striving to optimize their lifetime tax liabilities, while necessarily assuming that their Married Filing Joint status will continue indefinitely for planning purposes. It can come as a rude shock to see how much higher single tax rates are going to be, in the event of an untimely demise.

Intrigued, I wrote a paper to investigate the issue; it can be downloaded here: https://papers.ssrn.com/sol3/papers.cfm ... id=3896672 The abstract is at the end of this post.

However, because I’ve learned so much from the feedback of the BH community on earlier work, I decided to treat this iteration as very much a first draft, and to open a contest to determine the robustness of my initial findings. Specifically: I could not find a widow or widower's tax hit that was material; but maybe you can demonstrate a material tax hit, under some particular combination of circumstances that I overlooked, following the rules in the paper?

The contest is open to any reader, but I wanted to highlight the rules here on this forum, since Bogleheads are among those most likely to have the chops needed to play. Send entries to the email address at the front of the paper, and/or, post on this thread for all to see.

Rules of the contest:
1. Must send/display a 2-column table structured like the tables in the paper and use its metrics for what qualifies as “material.”
2. Couple’s income must be ≥ $52,460 in constant 2021 dollars (if you are using some other tax year than 2021);
3. Income loss must account for no more than 120% of the reduction in disposable income (disposable income is defined in the paper).
4. Fixed expense must be ≤ 60% of couple’s disposable income.
5. TCJA rates and brackets must apply, as adjusted for inflation, if not using 2021 values.
6. Total medical insurance costs for the decedent must be 2X Medicare B base rates, and IRMAA rates and brackets are to be as then current.
7. Social security tax torpedo, if present, must be addressed (and this provides a hint for how you might win).

[Honorable mention only for a case contrived using pre-TCJA rates and brackets, see final section of the paper. But honorable mention will be given.]

Winners acknowledged here, and in the next revision.

Abstract

For most married couples, after the first death the survivor will have to pay tax according to the single tax brackets, which often begin at half the married filing joint amount. However, the survivor’s income may not fall by half, as when retirement distributions continue at the same rate, or a pension was elected with 100% joint and survivor benefits. The widow/er tax hit is the expected outcome: higher tax payments on a lower postmortem income. This paper quantifies the tax hit at moderate to affluent income levels and finds that survivors may indeed pay more dollars in tax even though their income has declined with the loss of the decedent’s life-only income, such as social security. But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive. In cases where disposable income does drop enough to threaten lifestyle, the analysis finds that 100% or more of the reduction stems from the income lost, not the tax hit. With the widow/er tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
Last edited by McQ on Thu Aug 05, 2021 10:44 pm, edited 1 time in total.
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JoeRetire
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Re: Widow tax hit—debunked?

Post by JoeRetire »

McQ wrote: Wed Aug 04, 2021 11:39 amThe widow tax hit is the expected outcome: higher tax payments on a lower postmortem income.
Hmm. That seems to me as if the Widow Tax Hit is bunked.
But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive.
I don't see how that would be relevant. It's like saying Inflation is debunked because you can always choose to eat ramen.

My suggestion would be to drop the term "debunked" from your abstract and your paper, and focus more on the reasons that affluent couples should fear the loss of income more than the actual (real) Widow Tax Hit.

Good luck with your contest anyway.
Last edited by JoeRetire on Wed Aug 04, 2021 12:10 pm, edited 1 time in total.
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Chuckles960
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Re: Widow tax hit—debunked?

Post by Chuckles960 »

So our job is to help you write a better paper? Will we be co-authors?
Last edited by Chuckles960 on Wed Aug 04, 2021 12:00 pm, edited 2 times in total.
MoonOrb
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Re: Widow tax hit—debunked?

Post by MoonOrb »

These replies are kind of jerky given how much McQ is/has been willing to engage with this community.
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Re: Widow tax hit—debunked?

Post by KlangFool »

OP,

1) 1 million in the tax-deferred account.

2) Early retirement -> 50+ year old.

3) Annual expense may drop but that is irrelevant anyhow. The couple's portfolio with the EF is at 30X and heading towards 40X before social security.

4) In summary, the widow tax hit is a luxury tax. Aka, it would not affect the widow's life style and it just affect how much taxes are paid.

5) Pardon my ignorance, I do not see the point of your paper.

Two of my friends,

A) 65+ years old with 1.2 million in the tax-deferred account

B) 70+ years old with 1.8 million in the tax-deferred account.

The widow tax hit is real for them too.

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Katietsu
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Re: Widow tax hit—debunked?

Post by Katietsu »

KlangFool wrote: Wed Aug 04, 2021 12:06 pm
4) In summary, the widow tax hit is a luxury tax. Aka, it would not affect the widow's life style and it just affect how much taxes are paid.

KlangFool
I think one point is that not everyone is like KlangFool and knows it is a luxury tax that will not affect the widow’s life style significantly. Similarly, you know that RMDs on a $1 million traditional IRA are not going to result in emptying out the account just to pay the taxes.

Headlines from a Forbes’ article that include the phrase “Onerous Widow Penalty Tax” and stories about RMDs that include Tax Bomb and Tax Torpedo lead less knowledgeable retirees to fear a problem that does not exist, at least in the way they are envisioning it. I have known 70 year olds with anxiety about the tax hit from their RMDs starting who only have $25,000 in their IRA. My in laws were sold an annuity with over 3% in fees and ERs because of fears (unfounded,IMO) about these tax issues. I am not surprised that these click bait type words are used on sites for, well, click bait. I am surprised when they end up in a BH post.
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Lee_WSP
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Re: Widow tax hit—debunked?

Post by Lee_WSP »

I haven't had a chance to read the whole paper, is there a description of the window tax hyperbole? It may be helpful to be on the same page regarding what is being debunked.

Found it at the beginning.
The fear is easily stoked by an apparently impregnable argument.
1. Although the couple may enjoy a comfortable income, that is because, as married filing joint, they are located not too far up the tax bracket structure where rates are low;
2. Unfortunately, the widow will have to pay taxes as a single, where the brackets begin at half the dollar amount for MFJ;
3. Causing her tax rate to rise even as her income drops;
4. Leading to a significant crimp in her lifestyle if something is not done.
I'm not quite sure that income drops significantly in the widow scenario.
Last edited by Lee_WSP on Wed Aug 04, 2021 1:50 pm, edited 1 time in total.
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Re: Widow tax hit—debunked?

Post by Dottie57 »

Katietsu wrote: Wed Aug 04, 2021 12:29 pm
KlangFool wrote: Wed Aug 04, 2021 12:06 pm
4) In summary, the widow tax hit is a luxury tax. Aka, it would not affect the widow's life style and it just affect how much taxes are paid.

KlangFool
I think one point is that not everyone is like KlangFool and knows it is a luxury tax that will not affect the widow’s life style significantly. Similarly, you know that RMDs on a $1 million traditional IRA are not going to result in emptying out the account just to pay the taxes.

Headlines from a Forbes’ article that include the phrase “Onerous Widow Penalty Tax” and stories about RMDs that include Tax Bomb and Tax Torpedo lead less knowledgeable retirees to fear a problem that does not exist, at least in the way they are envisioning it. I have known 70 year olds with anxiety about the tax hit from their RMDs starting who only have $25,000 in their IRA. My in laws were sold an annuity with over 3% in fees and ERs because of fears (unfounded,IMO) about these tax issues. I am not surprised that these click bait type words are used on sites for, well, click bait. I am surprised when they end up in a BH post.
I am single. Guess I have been paying this luxury tax for a very long time without being widowed.
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changingtimes
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Re: Widow tax hit—debunked?

Post by changingtimes »

Widow here. Have not read the content in question, but definitely not in a situation where the loss of income is a bigger worry. Happy to answer questions. 😁
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Re: Widow tax hit—debunked?

Post by RickBoglehead »

So to summarize:

Wife doesn't need to worry that beer-guzzling, steak eating, need my toys husband will pass away and leave her with less net income, because spending goes down so much because wife isn't beer-guzzling, steak eating, or needing toys and that counteracts somewhat higher taxes? :sharebeer
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Re: Widow tax hit—debunked?

Post by humblecoder »

I think the title of the thread is a little misleading. As you point out in your abstract, there is definitely a tax hit from going from MFJ to Single filing status. What are think you are saying is that increase in taxes won't have as big an impact on the widow(er)'s quality of life since the reduction in household expenses will offset most of the additional tax burden.

Of course, if you do Roth conversions when you are still MFJ, you can "have your cake and eat it too". Meaning that you can both reduce your taxes once you become a widow(er) and while reducing your expenses. For people who may want to leave a legacy behind, less to the IRS means more to one's heirs.

I know in our personal situation, this is something that appeals, since we want to leave money behind to care for our disabled daughter once we are gone.
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Re: Widow tax hit—debunked?

Post by tibbitts »

Dottie57 wrote: Wed Aug 04, 2021 1:13 pm
Katietsu wrote: Wed Aug 04, 2021 12:29 pm
KlangFool wrote: Wed Aug 04, 2021 12:06 pm
4) In summary, the widow tax hit is a luxury tax. Aka, it would not affect the widow's life style and it just affect how much taxes are paid.

KlangFool
I think one point is that not everyone is like KlangFool and knows it is a luxury tax that will not affect the widow’s life style significantly. Similarly, you know that RMDs on a $1 million traditional IRA are not going to result in emptying out the account just to pay the taxes.

Headlines from a Forbes’ article that include the phrase “Onerous Widow Penalty Tax” and stories about RMDs that include Tax Bomb and Tax Torpedo lead less knowledgeable retirees to fear a problem that does not exist, at least in the way they are envisioning it. I have known 70 year olds with anxiety about the tax hit from their RMDs starting who only have $25,000 in their IRA. My in laws were sold an annuity with over 3% in fees and ERs because of fears (unfounded,IMO) about these tax issues. I am not surprised that these click bait type words are used on sites for, well, click bait. I am surprised when they end up in a BH post.
I am single. Guess I have been paying this luxury tax for a very long time without being widowed.
If you were always single you probably would have engineered your allocation of retirement funds accordingly. To me the issue is that if you were married you might have planned on taxable vs. deferred vs. Roth based on a certain calculation that's no longer correct.

Since $1M in deferred has been tossed around I don't think that's necessarily a problem for a single person depending on other income sources beyond maybe social security. Of course if you have a $100k pension that's a different situation. As you get beyond $1M in deferred I see that as more of a problem.
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Re: Widow tax hit—debunked?

Post by bsteiner »

Katietsu wrote: Wed Aug 04, 2021 12:29 pm ...
Headlines from a Forbes’ article that include the phrase “Onerous Widow Penalty Tax” and stories about RMDs that include Tax Bomb and Tax Torpedo lead less knowledgeable retirees to fear a problem that does not exist, at least in the way they are envisioning it. I have known 70 year olds with anxiety about the tax hit from their RMDs starting who only have $25,000 in their IRA. My in laws were sold an annuity with over 3% in fees and ERs because of fears (unfounded,IMO) about these tax issues. I am not surprised that these click bait type words are used on sites for, well, click bait. I am surprised when they end up in a BH post.
I haven't had any clients raise this issue. I don't think I've seen much discussion of it other than in this forum.

Married IRA owners will sometimes have more room to do Roth conversions in low or middle tax brackets.

Note that more of the joint return brackets were widened to twice the width under the Tax Cuts and Jobs Act, but those changes are only for 2018 through 2025, and are scheduled to revert to pre-2018 law in 2026.
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Re: Widow tax hit—debunked?

Post by hg064754 »

RickBoglehead wrote: Wed Aug 04, 2021 1:37 pm So to summarize:

Wife doesn't need to worry that beer-guzzling, steak eating, need my toys husband will pass away and leave her with less net income, because spending goes down so much because wife isn't beer-guzzling, steak eating, or needing toys and that counteracts somewhat higher taxes? :sharebeer
Exactly my reaction, although I was not funny enough to verbalize it as such!
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dodecahedron
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Re: Widow tax hit—debunked?

Post by dodecahedron »

humblecoder wrote: Wed Aug 04, 2021 2:00 pm I think the title of the thread is a little misleading. As you point out in your abstract, there is definitely a tax hit from going from MFJ to Single filing status. What are think you are saying is that increase in taxes won't have as big an impact on the widow(er)'s quality of life since the reduction in household expenses will offset most of the additional tax burden.

Of course, if you do Roth conversions when you are still MFJ, you can "have your cake and eat it too". Meaning that you can both reduce your taxes once you become a widow(er) and while reducing your expenses. For people who may want to leave a legacy behind, less to the IRS means more to one's heirs.

I know in our personal situation, this is something that appeals, since we want to leave money behind to care for our disabled daughter once we are gone.
I agree with the comments above. Essentially, taxes will need to be paid, sooner or later, on tax-deferred funds. MFJ tax filers have the equivalent of a discount tax coupon (kind of like a BOGO coupon) that they can use to pay some of their lifetime tax liability more cheaply during tax years when both are alive. That coupon expires in the year that the first spouse dies. (Due to the progressive structure of the income tax laws, it generally won't make sense for the couple to pay all of their lifetime tax bill while both are alive.)

Just because the surviving spouse will not necessarily be left impoverished by the failure to take into account the existence of the BOGO tax coupon while both were alive does not mean that it makes sense to *ignore* the existence of the BOGO coupon in deciding on how much conversion to do while both were alive.

An easy, obvious edge case to illustrate this is the year of death of the first-to-die. My late husband died in the first half of the tax year [eight years ago]. Well before the end of that tax year, I was ready to start doing a few simple financial decisions. I realized that substantial Roth conversions made sense that year, since it would be our last one as MFJ. It made sense, at the margin, to do more Roth conversions in that year than I would likely be doing in future years (ceteris paribus, at least!)

Obviously, unpredictable future changes (e.g., to tax laws or taxable income streams from changes in interest or to deductions from increased medical needs, etc.) still make it not obvious precisely how much of the coupon to redeem in any given year, but in general it does make sense for MFJ couples to do somewhat more in Roth conversions than a comparably situated permanently Single taxpayer would do with a similar amount of tax-deferred assets.
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Re: Widow tax hit—debunked?

Post by delamer »

Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
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Re: Widow tax hit—debunked?

Post by cheese_breath »

hg064754 wrote: Wed Aug 04, 2021 2:15 pm
RickBoglehead wrote: Wed Aug 04, 2021 1:37 pm So to summarize:

Wife doesn't need to worry that beer-guzzling, steak eating, need my toys husband will pass away and leave her with less net income, because spending goes down so much because wife isn't beer-guzzling, steak eating, or needing toys and that counteracts somewhat higher taxes? :sharebeer
Exactly my reaction, although I was not funny enough to verbalize it as such!
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Re: Widow tax hit—debunked?

Post by dodecahedron »

McQ wrote: Wed Aug 04, 2021 11:39 am With the widow tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
I should hasten to add that although I have long been well aware of the filing status tax issues for widows,

(1) I never *feared* it, I simply took it to be a relevant parameter for planning purposes.

(2) I certainly felt no need to purchase financial planning services designed to avert it.

I know a lot of widows, with a wide variety of levels of resources and financial sophistication, some of whom have felt the need to purchase financial planning services, but I do not know anyone specifically concerned about the widow tax hit.

For most people (even including most credentialed tax professionals of my acquaintance), taxes are an inscrutable and mysterious black box.
Last edited by dodecahedron on Wed Aug 04, 2021 2:36 pm, edited 1 time in total.
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Re: Widow tax hit—debunked?

Post by DSBH »

McQ wrote: Wed Aug 04, 2021 11:39 am Abstract

For most married couples, after the first death the survivor will have to pay tax according to the single tax brackets, which often begin at half the married filing joint amount. However, the survivor’s income may not fall by half, as when retirement distributions continue at the same rate, or a pension was elected with 100% joint and survivor benefits. The widow tax hit is the expected outcome: higher tax payments on a lower postmortem income. This paper quantifies the widow tax hit at moderate to affluent income levels and finds that widows may indeed pay more dollars in tax even though their income has declined with the loss of the decedent’s life-only income, such as social security. But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive. In cases where disposable income does drop enough to threaten lifestyle, the analysis finds that 100% or more of the reduction stems from the income lost, not the tax hit. With the widow tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
I could think of a scenario where DH and DW both have SS equal to 45K/yr each, and when a spouse passes away the survivor loses 45K/yr of income but at the same time the living expenses drop by 45K (say from a MFJ total of 120K/yr). While RMD may stay the same, the survivor will have to pay tax as a Single but on a lower taxable income, and as a result the survivor tax hit may not be significant.

Not sure how the situation could be generalized, but I will read the paper. Thanks to McQ for your contribution and time.
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Re: Widow tax hit—debunked?

Post by BreadandButter »

Mitigation of The Widow tax is mostly a planning issue for people who want to leave money to their children, even though the widow(er) may not need to cut back their lifestyle due to it.
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Re: Widow tax hit—debunked?

Post by rwcox123 »

I came to a similar conclusion for our personal circumstances, after running numerous scenarios with i-ORP and other tools. We will be in the "near top of 24% bracket" scenario of your paper, and with pensions and SS alone pushing us into the 22% bracket, Roth conversions before age 72 just don't seem to have much to recommend them -- at best, break even on taxes in our mid-to-late 80s. No kids to leave the money too (just nieces and nephews), so the legacy motive is limited.
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Re: Widow tax hit—debunked?

Post by SuzBanyan »

DSBH wrote: Wed Aug 04, 2021 2:36 pm
McQ wrote: Wed Aug 04, 2021 11:39 am Abstract

For most married couples, after the first death the survivor will have to pay tax according to the single tax brackets, which often begin at half the married filing joint amount. However, the survivor’s income may not fall by half, as when retirement distributions continue at the same rate, or a pension was elected with 100% joint and survivor benefits. The widow tax hit is the expected outcome: higher tax payments on a lower postmortem income. This paper quantifies the widow tax hit at moderate to affluent income levels and finds that widows may indeed pay more dollars in tax even though their income has declined with the loss of the decedent’s life-only income, such as social security. But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive. In cases where disposable income does drop enough to threaten lifestyle, the analysis finds that 100% or more of the reduction stems from the income lost, not the tax hit. With the widow tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
I could think of a scenario where DH and DW both have SS equal to 45K/yr each, and when a spouse passes away the survivor loses 45K/yr of income but at the same time the living expenses drop by 45K (say from a MFJ total of 120K/yr). While RMD may stay the same, the survivor will have to pay tax as a Single but on a lower taxable income, and as a result the survivor tax hit may not be significant.

Not sure how the situation could be generalized, but I will read the paper. Thanks to McQ for your contribution and time.
I think the paper assumes a reduction in SS of 33% to 50% on the death of the first spouse and this drop in income is one reason the tax hit is mitigated. On the other hand, the survivor of some couples will see SS go up at the death of the first spouse, primarily when one or both are younger than 70 and particularly when the benefits are unequal. My SS benefit will be substantially larger than my husband’s and I am the younger spouse, so If I pass before age 70 when I start benefits, his income from SS will significantly increase.
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Re: Widow tax hit—debunked?

Post by RetiredAL »

McQ wrote: Wed Aug 04, 2021 11:39 am
Intrigued, I wrote a paper to investigate the issue; it can be downloaded here: https://papers.ssrn.com/sol3/papers.cfm ... id=3896672 The abstract is at the end of this post.
Based a quick overview, I think you may be presumptuous in thinking the last-standing's income needs (and stream) will be that much lower. That biases the 'single impact' towards 'not so significant'. In my case, the last-standing will need close to (95%) as much spendable money, which requires a larger IRA withdrawal to make up for the loss of SS, which generates an even higher tax bill, so even more needs to be withdrawn.

DW and I are at the worst part of the SS tax hump, where additional IRA withdrawal means a painfully higher tax bill. My previous modeling work said the last-standing's tax bill will nearly double, and those additional tax $ will need to come out of the IRA. As single, the incremental on those additional $ will be 40% due the the SS hump.

One of the reasons there is so much dialog here at BH's about this, is that the impact is highly dependent on SS and where the balance of the spending needs come from, thus each poster has to discover the impact to them. A couple whose income is $150K, sourced as $50K SS plus 100K of taxable other, is affected much less overall by this SS tax unevenness compared to a couple like DW and I whose income last year was $75K (not counting my Roth conversion), sourced as $49K SS plus $26K taxable of other.
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Re: Widow tax hit—debunked?

Post by cowdogman »

McQ: You may also want to factor in the studies showing that the survivor of older married couples has a shorter life-span that would otherwise be expected (if individual life expectancy were the measure). See for example https://papers.ssrn.com/sol3/papers.cfm ... id=3445837 Another reason the survivor tax hit may not be as bad as portrayed--altho the reason is kinda grim.
For couples, analogous measures are the expected years both spouses will be alive (joint life expectancy) and the expected years the surviving spouse will spend as a widow or widower (survivor life expectancy). Using individual life expediencies to calculate summary measures for
couples yields substantially misleading results because the mortality distribution of husbands and wives overlap substantially. To illustrate, consider a wife aged 60 whose husband is 62. In 2010, the wife's life expectancy was 24.5 years and her husband's 20.2 years. The couple's joint life
expectancy, however, is only 17. 7 years. Although her life expectancy is four years longer than his, if she is widowed (probability: .62), her survivor life expectancy is 12.5 years; if the husband is a widower (probability: .38), his survivor life expectancy is 9.5 years
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McQ
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Re: Widow tax hit—debunked?

Post by McQ »

Dottie57 wrote: Wed Aug 04, 2021 1:13 pm
Katietsu wrote: Wed Aug 04, 2021 12:29 pm
KlangFool wrote: Wed Aug 04, 2021 12:06 pm
4) In summary, the widow tax hit is a luxury tax. Aka, it would not affect the widow's life style and it just affect how much taxes are paid.

KlangFool
I think one point is that not everyone is like KlangFool and knows it is a luxury tax that will not affect the widow’s life style significantly. Similarly, you know that RMDs on a $1 million traditional IRA are not going to result in emptying out the account just to pay the taxes.

Headlines from a Forbes’ article that include the phrase “Onerous Widow Penalty Tax” and stories about RMDs that include Tax Bomb and Tax Torpedo lead less knowledgeable retirees to fear a problem that does not exist, at least in the way they are envisioning it. I have known 70 year olds with anxiety about the tax hit from their RMDs starting who only have $25,000 in their IRA. My in laws were sold an annuity with over 3% in fees and ERs because of fears (unfounded,IMO) about these tax issues. I am not surprised that these click bait type words are used on sites for, well, click bait. I am surprised when they end up in a BH post.
I am single. Guess I have been paying this luxury tax for a very long time without being widowed.
Dottie57: If you want to see your “Single Tax Hit” expressed as a percentage of income, Figure 1 in the paper tells the story. Generally, a single pays 5-6% more of income in tax than a couple with the same income. Peak hit to the single is around $350,000, where it climbs to 7%, before dropping back down.

Other than that tax chart, well, as I said to my always-single sister: “This is probably the one paper of mine you are least likely ever to want to read.” She agreed with a laugh.
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Re: Widow tax hit—debunked?

Post by DSBH »

SuzBanyan wrote: Wed Aug 04, 2021 4:00 pm
DSBH wrote: Wed Aug 04, 2021 2:36 pm
McQ wrote: Wed Aug 04, 2021 11:39 am Abstract

For most married couples, after the first death the survivor will have to pay tax according to the single tax brackets, which often begin at half the married filing joint amount. However, the survivor’s income may not fall by half, as when retirement distributions continue at the same rate, or a pension was elected with 100% joint and survivor benefits. The widow tax hit is the expected outcome: higher tax payments on a lower postmortem income. This paper quantifies the widow tax hit at moderate to affluent income levels and finds that widows may indeed pay more dollars in tax even though their income has declined with the loss of the decedent’s life-only income, such as social security. But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive. In cases where disposable income does drop enough to threaten lifestyle, the analysis finds that 100% or more of the reduction stems from the income lost, not the tax hit. With the widow tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
I could think of a scenario where DH and DW both have SS equal to 45K/yr each, and when a spouse passes away the survivor loses 45K/yr of income but at the same time the living expenses drop by 45K (say from a MFJ total of 120K/yr). While RMD may stay the same, the survivor will have to pay tax as a Single but on a lower taxable income, and as a result the survivor tax hit may not be significant.

Not sure how the situation could be generalized, but I will read the paper. Thanks to McQ for your contribution and time.
I think the paper assumes a reduction in SS of 33% to 50% on the death of the first spouse and this drop in income is one reason the tax hit is mitigated. On the other hand, the survivor of some couples will see SS go up at the death of the first spouse, primarily when one or both are younger than 70 and particularly when the benefits are unequal. My SS benefit will be substantially larger than my husband’s and I am the younger spouse, so If I pass before age 70 when I start benefits, his income from SS will significantly increase.
I only read it very quickly but I think the paper assumes equal SS benefits for the 2 spouses. However if the SS benefits are significantly different and the surviving spouse ended up with the higher SS benefits, keeping all else constant the increase in income taxes paid on average will likely be a lot less than the avoided living expenses (up to 32.5% less by the paper) minus the (smaller) lost SS. The surviving spouse would pay more taxes - hence the "tax hit" but end up with a higher ending portfolio value. That would be my current understanding (plus some extrapolation) of the paper.
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Re: Widow tax hit—debunked?

Post by chazas »

delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
Or “surviving spouse.”
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Re: Widow tax hit—debunked?

Post by JoeRetire »

delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”
Read Note 1 at the end of the paper.
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Re: Widow tax hit—debunked?

Post by delamer »

chazas wrote: Wed Aug 04, 2021 7:13 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
Or “surviving spouse.”
That works too!
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Re: Widow tax hit—debunked?

Post by lurkman »

humblecoder wrote: Wed Aug 04, 2021 2:00 pm I think the title of the thread is a little misleading. As you point out in your abstract, there is definitely a tax hit from going from MFJ to Single filing status. What are think you are saying is that increase in taxes won't have as big an impact on the widow(er)'s quality of life since the reduction in household expenses will offset most of the additional tax burden.

Of course, if you do Roth conversions when you are still MFJ, you can "have your cake and eat it too". Meaning that you can both reduce your taxes once you become a widow(er) and while reducing your expenses. For people who may want to leave a legacy behind, less to the IRS means more to one's heirs.

I know in our personal situation, this is something that appeals, since we want to leave money behind to care for our disabled daughter once we are gone.
Right on all counts. Make the metric the size of the estate left to heirs and nothing is debunked.
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Re: Widow tax hit—debunked?

Post by Exchme »

In my own calculations, I would agree with McQ's conclusion. Downsizing the house, getting rid of a car, one cell phone, one mouth to feed, etc. just about compensated for the shrunken tax brackets and loss of one SS check. In our case, I was a much larger earner, so our SS benefits are lopsided so it may be a bit of a best case (but she is the bigger spender, so there's that :D ) I even looked at what happened if I died immediately and missed out on the wider Roth conversion brackets and DW only getting SS survivor benefits. But in that case, she could claim on her SS for several years prior to claiming survivor benefits and the survivor benefits start at 67 instead of age 70 as I intend to do.

I concluded that she shouldn't knock me off for monetary reasons as there was more money (net after tax adjustments) as MFJ than single, but I thought it would be a much bigger difference than the modeling showed.
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Re: Widow tax hit—debunked?

Post by cheese_breath »

Exchme wrote: Wed Aug 04, 2021 9:21 pm
... I concluded that she shouldn't knock me off for monetary reasons as there was more money (net after tax adjustments) as MFJ than single, but I thought it would be a much bigger difference than the modeling showed.
Unless she's taken out some new life insurance policies on you. :D :o :shock:
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Re: Widow tax hit—debunked?

Post by Exchme »

cheese_breath wrote: Wed Aug 04, 2021 9:26 pm
Exchme wrote: Wed Aug 04, 2021 9:21 pm
... I concluded that she shouldn't knock me off for monetary reasons as there was more money (net after tax adjustments) as MFJ than single, but I thought it would be a much bigger difference than the modeling showed.
Unless she's taken out some new life insurance policies on you. :D :o :shock:
She pays the bills, so I wouldn't even know...plus, as a single, the slightly reduced pile would be all hers, so maybe I should watch out.

On a serious note, thanks to Prof McQ for another thought provoking paper and discussion.
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Re: Widow tax hit—debunked?

Post by McQ »

delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
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Re: Widow tax hit—debunked?

Post by teen persuasion »

McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
While I accept the life expectancy side of things, the rest comes across as paternalistic.

I'm not as sure of the gender split on Bogleheads, but other financial message forums I participate on are either evenly male/female or skew more female. We are the family CFOs, the planners.
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Re: Widow tax hit—debunked?

Post by SuzBanyan »

McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
To start, I think you have done a good job in debunking the idea that a surviving spouse will inevitably be financially needy.

But I think you do a disservice by using the word “widow” if your goal is to reduce the emotional appeal of a financial sales pitch.

You wrote in the footnote: “But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit.”

This encourages your reader to feel that the surviving spouse, while not financially needy, will nevertheless be vulnerable. If the survivor is perceived as vulnerable, the protector will feel more comfortable in sparing no cost to provide the necessary protection. Just what that predatory salesperson wants.
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Re: Widow tax hit—debunked?

Post by lazynovice »

teen persuasion wrote: Thu Aug 05, 2021 8:46 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
While I accept the life expectancy side of things, the rest comes across as paternalistic.

I'm not as sure of the gender split on Bogleheads, but other financial message forums I participate on are either evenly male/female or skew more female. We are the family CFOs, the planners.
I am female and I think this forum skews male. And it is mostly men who post things that say they need to aggressively manage the widow hit. And the ones who fear Fidelity and Schwab will swindle their wives with high fee products in widowhood. I rarely see women posting concerned about these two things.

I’d be curious to visit the other financial forums you participate in with heavier female representation. Not sure if you can post publicly but maybe by DM.
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Re: Widow tax hit—debunked?

Post by delamer »

McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
Thanks for responding.

While I understand your argument that “for historical reasons widow connotes vulnerability in a way that survivor cannot,” it also perpetuates that stereotype of the helpless woman who can’t manage support herself or manage her financial affairs.

“Survivor” and “decedent” are completely clear terms.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Widow tax hit—debunked?

Post by JBTX »

McQ wrote: Wed Aug 04, 2021 11:39 am In an earlier forum on Roth conversions I learned that many BH worry about the tax situation of their widowed spouse—and worry may not be strong enough to capture the emotion. Not a few BH are assiduous tax planners, striving to optimize their lifetime tax liabilities, while necessarily assuming that their Married Filing Joint status will continue indefinitely for planning purposes. It can come as a rude shock to see how much higher single tax rates are going to be, in the event of an untimely demise.

Intrigued, I wrote a paper to investigate the issue; it can be downloaded here: https://papers.ssrn.com/sol3/papers.cfm ... id=3896672 The abstract is at the end of this post.

However, because I’ve learned so much from the feedback of the BH community on earlier work, I decided to treat this iteration as very much a first draft, and to open a contest to determine the robustness of my initial findings. Specifically: I could not find a widow’s tax hit that was material; but maybe you can demonstrate a material widow tax hit, under some particular combination of circumstances that I overlooked, following the rules in the paper?

The contest is open to any reader, but I wanted to highlight the rules here on this forum, since Bogleheads are among those most likely to have the chops needed to play. Send entries to the email address at the front of the paper, and/or, post on this thread for all to see.

Rules of the contest:
1. Must send/display a spreadsheet structured like the tables in the paper and use its metrics for what qualifies as “material.”
2. Couple’s income must be ≥ $52,460 in constant 2021 dollars (if you are using some other tax year than 2021);
3. Income loss must account for no more than 120% of the reduction in disposable income (disposable income is defined in the paper).
4. Fixed expense must be ≤ 60% of couple’s disposable income.
5. TCJA rates and brackets must apply, as adjusted for inflation, if not using 2021 values.
6. Total medical insurance costs for the decedent must be 2X Medicare B base rates, and IRMAA rates and brackets are to be as then current.
7. Social security tax torpedo, if present, must be addressed (and this provides a hint for how you might win).

[Honorable mention only for a case contrived using pre-TCJA rates and brackets, see final section of the paper. But honorable mention will be given.]

Winners acknowledged here, and in the next revision.

Abstract

For most married couples, after the first death the survivor will have to pay tax according to the single tax brackets, which often begin at half the married filing joint amount. However, the survivor’s income may not fall by half, as when retirement distributions continue at the same rate, or a pension was elected with 100% joint and survivor benefits. The widow tax hit is the expected outcome: higher tax payments on a lower postmortem income. This paper quantifies the widow tax hit at moderate to affluent income levels and finds that widows may indeed pay more dollars in tax even though their income has declined with the loss of the decedent’s life-only income, such as social security. But the paper also finds that under most circumstances, the reduction in required dollar expenditure overcomes the increase in tax dollars paid, preserving the same share of after-tax disposable income the survivor enjoyed while both were alive. In cases where disposable income does drop enough to threaten lifestyle, the analysis finds that 100% or more of the reduction stems from the income lost, not the tax hit. With the widow tax hit debunked, the paper proceeds to offer behavioral finance explanations for why so many retirees fear it, and why it continues to function as a sales tool to motivate the purchase of financial services designed to avert it.
Obviously, you've set the income right at the single 12-22% tax bracket + std deduction, so of course, it makes no difference at that level. But yes, the SS hump tends to hit at lower levels for single, so it will show up there.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

Looking at it differently, for those trying to optimize traditional vs Roth, or Roth conversions, whether you are at 12 or 22% marginal on the back end changes that optimization. But the truth is the absolute impact of those "marginal" dollars may not be "material" in the scheme of things.
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Re: Widow tax hit—debunked?

Post by chazas »

delamer wrote: Thu Aug 05, 2021 9:16 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
Thanks for responding.

While I understand your argument that “for historical reasons widow connotes vulnerability in a way that survivor cannot,” it also perpetuates that stereotype of the helpless woman who can’t manage support herself or manage her financial affairs.

“Survivor” and “decedent” are completely clear terms.
Agree completely. Times change, language and custom changes, and you can't fix it with a note.
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Re: Widow tax hit—debunked?

Post by teen persuasion »

lazynovice wrote: Thu Aug 05, 2021 9:00 am
teen persuasion wrote: Thu Aug 05, 2021 8:46 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
While I accept the life expectancy side of things, the rest comes across as paternalistic.

I'm not as sure of the gender split on Bogleheads, but other financial message forums I participate on are either evenly male/female or skew more female. We are the family CFOs, the planners.
I am female and I think this forum skews male. And it is mostly men who post things that say they need to aggressively manage the widow hit. And the ones who fear Fidelity and Schwab will swindle their wives with high fee products in widowhood. I rarely see women posting concerned about these two things.

I’d be curious to visit the other financial forums you participate in with heavier female representation. Not sure if you can post publicly but maybe by DM.
I also think this board probably skews more male, but it may not be as unbalanced as we think. There's an unconscious bias to assume posters are male, absent obvious gender clues. Note how many female members have posted here, myself included. And some posters choose to be deliberately vague.

The Mr Money Mustache forum seems evenly male/female; there's probably a good bit of overlap with Bogleheads, too.

The other board I referred to is quite small, and though it started as a financial discussion board, over time it's become more social in nature - few new members, those remaining over time have worked thru our financial issues, so discussion has shifted. In my memory it's a financial board, but looking at it now it really isn't anymore - the members just all had a financial interest drawing them together.
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Re: Widow tax hit—debunked?

Post by cowdogman »

Exchme wrote: Wed Aug 04, 2021 9:21 pm I concluded that she shouldn't knock me off for monetary reasons as there was more money (net after tax adjustments) as MFJ than single, but I thought it would be a much bigger difference than the modeling showed.
For us it's a 3-4% (varies, of course, each year) increase in tax as percentage of our anticipated annual withdrawal. So, not a big hit.
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Re: Widow tax hit—debunked?

Post by pasadena »

delamer wrote: Thu Aug 05, 2021 9:16 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
Thanks for responding.

While I understand your argument that “for historical reasons widow connotes vulnerability in a way that survivor cannot,” it also perpetuates that stereotype of the helpless woman who can’t manage support herself or manage her financial affairs.

“Survivor” and “decedent” are completely clear terms.
As a woman, I completely agree with this. Thanks for pointing it out in a much better way than I would have. This is something that often rubs me the wrong way on this forum (and others), and probably the one thing that jumped at me when I read the paper.

@McQ, please, please update the paper instead of adding that footnote.
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Re: Widow tax hit—debunked?

Post by 2cents2 »

delamer wrote: Thu Aug 05, 2021 9:16 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
Thanks for responding.

While I understand your argument that “for historical reasons widow connotes vulnerability in a way that survivor cannot,” it also perpetuates that stereotype of the helpless woman who can’t manage support herself or manage her financial affairs.

“Survivor” and “decedent” are completely clear terms.
I have to +1 on this. My spouse (husband) is not interested in anything financial. I have tried to manage our portfolio in a way that will make it easier on him. But, even so, if I predecease him he is going to have a steep learning curve.
Juice3
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Re: Widow tax hit—debunked?

Post by Juice3 »

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Last edited by Juice3 on Fri Jul 14, 2023 1:49 pm, edited 1 time in total.
bsteiner
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Re: Widow tax hit—debunked?

Post by bsteiner »

pasadena wrote: Thu Aug 05, 2021 9:58 am
delamer wrote: Thu Aug 05, 2021 9:16 am
McQ wrote: Wed Aug 04, 2021 11:38 pm
delamer wrote: Wed Aug 04, 2021 2:22 pm Could you please change the reference to “survivor” or “widowed survivor” rather than just “widow?”

Good luck with your contest.
If a moderator seconds your request I agree to retitle here on the forum. Here is footnote #1, explaining why I kept the gendered language in the paper (with a shoutout to JoeRetire, memberlist.php?mode=viewprofile&u=129518, for reading the footnotes) :sharebeer

"A note on gender: in this paper widow is almost always used in place of survivor, and husband in place of decedent. Husband also refers to the planner or provider who hopes to protect a vulnerable survivor. The numbers themselves, of course, are free of gender and apply regardless of whether the decedent (survivor) is male (female). Why then the choice to use gendered terms? On the one hand, the gendered terms reflect US demographic probabilities in the 21st century, given male and female life expectancies combined with the tendency of males to marry females a few years younger. But more importantly for the narrative, for historical reasons widow connotes vulnerability in a way that survivor cannot, and likewise, I observe that it has typically been the (male) husband who has been the target of sales pitches that attempt to leverage the supposed widow tax hit. Last, “widower tax hit” produced no results on either Bing or Google on July 8, 2021"
Thanks for responding.

While I understand your argument that “for historical reasons widow connotes vulnerability in a way that survivor cannot,” it also perpetuates that stereotype of the helpless woman who can’t manage support herself or manage her financial affairs.

“Survivor” and “decedent” are completely clear terms.
As a woman, I completely agree with this. Thanks for pointing it out in a much better way than I would have. This is something that often rubs me the wrong way on this forum (and others), and probably the one thing that jumped at me when I read the paper.

@McQ, please, please update the paper instead of adding that footnote.
McQ: you are correct that in opposite sex married couples, more often than not the husband is older than the wife, and more often than not the husband dies first.

However, in a significant minority of cases, the wife dies first.

I don't know which sex gets pitched inappropriate investments more often, or which sex falls for these pitches more often. I wasn't aware that older married people were being pitched life insurance for this purposes.

I agree with pasadena and others that you should use gender-neutral terminology to include everyone, or in this case all married IRA owners.

I also agree that the surviving spouse tax rates is less of an issue than it may appear. While I sometimes mention it in discussing Roth conversions, it's more in the context of taking advantage of the lower or middle tax brackets for Roth conversions. The 24% bracket on a joint return goes up to $329,850 in 2021, which allows for substantial Roth conversions in middle brackets. The 24% bracket is schedule to revert to 28% in 2026. Perhaps more significant, the widening of some of the joint return brackets to twice the width of the single brackets is also scheduled to revert to pre-2018 law in 2026.
bsteiner
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Re: Widow tax hit—debunked?

Post by bsteiner »

Juice3 wrote: Thu Aug 05, 2021 10:35 am
bsteiner wrote: Wed Aug 04, 2021 2:14 pm Note that more of the joint return brackets were widened to twice the width under the Tax Cuts and Jobs Act, but those changes are only for 2018 through 2025, and are scheduled to revert to pre-2018 law in 2026.
Some real irony here if the suggestion is the widow tax penalty is not real because a couple taxed at higher rates than two individuals.
Sometimes two individuals pay more tax if they're married to each other, and sometimes the same two individuals would pay less tax if they were single. Joint returns were intended to equalize married couples in common law states with married couples in community property states.

The discussion of equity among (i) married couples where both have income, (ii) single persons, and (iii) married couples where one has much more income than the other, has gone on for many years, and Congress has tweaked the law several times in that regard.
prd1982
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Re: Widow tax hit—debunked?

Post by prd1982 »

I agree on using gender neutral terms. However, a paragraph or two about gender difference lifespans makes sense. I would also suggest that one could mention that the most common baby boomer generation married couple situation has the male being older and having the larger SS payout. Put the text inline 1-time, and then stick to gender neutral. Also make it clear that married applies to people recognized as married by the feds, which includes same sex.
HomeStretch
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Re: Widow tax hit—debunked?

Post by HomeStretch »

chazas wrote: Thu Aug 05, 2021 9:31 am
delamer wrote: Thu Aug 05, 2021 9:16 am
“Survivor” and “decedent” are completely clear terms.
Agree completely. Times change, language and custom changes, and you can't fix it with a note.
+1 to both responses.
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siamond
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Re: Widow tax hit—debunked?

Post by siamond »

McQ, thank you for writing this paper. In our own case (my wife and I), we did reach a similar conclusion, the tax impact is real, but what really matters is purchasing power related to current circumstances (couple or single survivor), and one would roughly compensate for the other. In addition, some Roth conversion planning early on definitely helps mitigating tax impact in the later years. I didn't try to generalize and find counter examples though, this is only about our specific situation, assuming the tax code doesn't change in an overly dramatic manner (er... we'll see).

I think tax planning is by far the most difficult topic for retirees (notably early retirees). Asset Allocation is really simple if one follows Bogleheads principles. An adaptive withdrawal strategy is more complicated, but once one sets their mind to it, does some research and plays a bit with a spreadsheet, it isn't that hard. But tax planning over the entire retirement period, shesh, this is tricky. So I certainly welcome any in-depth research in this area, but yes, only when properly positioned against what truly matters, which is purchasing power.

I do agree with the writing style comments. Avoid overly provocative words like 'debunked' which may or may not be true for all situations. Write in a gender-neutral manner. Fixing those distracting issues will allow readers and reviewers to focus on the real issues at stake, instead of side-tracking. The point is not to figure who's right or wrong about such terminology issues, the point is to avoid corresponding discussions all together (hence stay focused on the real topic).
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