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July 21, 2021

How Marriage Affects Your Taxes and Retirement Planning

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With the weather warming up and a few covid restrictions being lifted, wedding season is in full bloom. Along with choosing the right cake and flowers, newlyweds should be aware of how saying “I Do” affects their tax situation and retirement planning.

Here’s a checklist for newly married couples:

Update Name and Address

Name - If you choose to change your name when you get married, it is important to report that change to the Social Security Administration. This is an important step since if your name does not match what is on file at the SSA, it could delay any tax refund.

Address - If you move locations after marriage, you should update the IRS and US Postal Service of your new address. To do this, fill out IRS Form 8822, Change of Address.

Retirement Accounts - It is important to make sure your IRA or 401(k) Custodian is up-to-date on your name and address change as well. This will ensure fewer delays when you are looking to rollover funds, transfer assets, or make an investment. At Broad Financial and Madison Trust, this can be done by filling out an Update Account Information Form. Reminder: If you have an IRA or 401(k) in multiple locations, be sure to let all of the custodians know to limit any possible confusion or delays.

Consider Changing Your Tax Filing Status

Each year, couples can choose whether they would like to file their federal income taxes jointly or separately. Before you decide, it’s best to calculate the tax liability for both situations. Depending on your specific set of circumstances, one may be decidedly better than the other. (Note: If you are married as of December 31, for tax purposes the law considers you as married for the entire year.)

Open a Joint 401(k)

If you open an employer-sponsored 401(k) after you and your spouse are married, you may create a joint account. Married couples who are dual-earners and both have a 401(k) at their employer can defer income tax on twice as much cash as a single person. If you can only save a limited amount, couples can decide which 401(k) has the better employer contributions and focus their saving efforts there. (Keep in mind that spouses are usually the default beneficiary of a 401(k) balance upon the death of the account owner, which is not the case for IRAs.)

Contribute to a Spouse's IRA

When you get married, many things are joined together with your spouse such as your bank account, home, etc. One of the exceptions is an IRA. As the name implies, the account can only be associated with one individual.

Although you cannot share an IRA account, if your spouse does not work or earns a lower income than you, you may contribute to a Roth or Traditional IRA on their behalf. This will help increase tax-advantaged retirement savings for the whole family. The working/higher-earning spouse must be able to contribute to both accounts, and may even be able to make full contributions. Before doing so, double-check with your financial advisor since being married can affect income and tax deduction limits for IRAs.

Speak to a Financial Advisor

Marriage is a beautiful bond between two individuals that requires a lot of thought and preparation, both for the event and for your future together. Include both spouses in the decision-making process to empower each other to work together and achieve your retirement goals. It is always recommended to speak to a financial advisor before making any decisions about your tax situation and retirement strategy.

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