Retirement Benefits for Same-Sex Married Couples

The U.S. Supreme Court's landmark decisions in United States v. Windsor and Obergefell v. Hodges made same-sex marriages legal nationwide, and ensured that those marriages would enjoy the same rights and benefits bestowed by state and federal law on traditional marriages. As a legally married same-sex spouse, you'll want to be aware of several retirement plan rules that apply specifically to married individuals.


If you participate in a 401(k) or similar plan at work, federal law provides that your spouse is automatically the beneficiary of your account in the event of your death. You can name someone else as beneficiary, but only if your spouse agrees in writing (witnessed by a plan representative or notary public). Special rules apply if your plan pays benefits in the form of an annuity.

IRAs aren't subject to this federal law, although your state may impose its own, similar requirements. For example, if you live in a community property state, your spouse may have legal rights to your IRA regardless of whether he or she is named as the primary beneficiary.

Even without a requirement that you do so, naming your spouse as beneficiary is often the best choice. One reason is that a spouse beneficiary has more options and flexibility in terms of post-death distributions than a nonspouse beneficiary. For example, spouse beneficiaries generally may take required distributions from employer plans and IRAs at a later date, and over a longer period of time, than nonspouse beneficiaries.

Your surviving spouse may also have two other options that are not available to other beneficiaries. First, your surviving spouse may choose to roll over inherited IRA or plan funds to his or her own IRA or plan. Second, your surviving spouse may elect to simply leave the funds in an inherited IRA and treat that account as his or her own account. In either case, the potential may exist for significant estate planning and income tax benefits. This is because your surviving spouse may defer taking distributions of the inherited funds until his or her own required beginning date, and may also designate new beneficiaries of his or her choice (your children, for example) who could later stretch out distributions even more after your spouse's death.


If you participate in a traditional pension plan at work, you'll typically be entitled to receive monthly benefits from the plan after you retire. These benefits are usually based on your age at retirement, as well as your years of service and your average earnings with the company. The normal form of benefit is usually a single life annuity--that is, an annuity that makes monthly payments to you only while you're alive and stops making payments after your death. 

But if you're married, federal law requires that your benefit be paid instead as a qualified joint and survivor annuity (QJSA), unless you elect another payment option (with your spouse's written consent). Though the term sounds complicated, a QJSA is simply an annuity that pays monthly benefits to you while you're alive and continues to pay at least 50% of your benefit to your spouse upon your death.

The payments you'll receive under a QJSA are normally smaller than the amount you'd receive under the single life annuity because those payments are projected to continue until both you and your spouse have died. The single life annuity provides a larger monthly payment because it's projected to be paid over a shorter period of time--one lifetime instead of two. Payments stop once you, the plan participant, die. One of the most important retirement decisions you and your spouse may make is whether to receive your pension benefit as a QJSA (a smaller monthly amount payable over your joint lives) or to waive that benefit in favor of the larger single life annuity.

However, some employers "subsidize" the QJSA. Subsidizing the QJSA occurs when your employer's plan does not reduce the benefit payable during your joint lives (or reduces it less than the amount allowed), despite the longer payout period, making the actuarial value of the QJSA greater than that of the single life annuity option. A subsidized QJSA can be a very valuable benefit for married participants. It's important for you to know whether your employer subsidizes the QJSA so that you can make an informed decision about which payment option to select.

For example, Tom is a participant in his employer's defined benefit plan and is married. His pension benefit payable as a single life annuity is $3,000 per month beginning at age 65. His benefit payable as a QJSA is also $3,000 per month, with 50% of his benefit (that is, $1,500) continuing to his surviving spouse after his death. Tom's QJSA is subsidized: The benefit payable during Tom's lifetime is not reduced, even though benefits will be paid over both Tom's and his spouse's lifetimes.


If you're a nonworking spouse, your ability to contribute toward your own retirement is limited. But there is one tool you should know about. The "spousal IRA" rule may let you fund an IRA even if you aren't working and have no earnings. A spousal IRA is your own account, in your own name--one that could become an important source of retirement income with regular contributions over time.

How does it work? Normally, to contribute to an IRA, you must have compensation at least equal to your contribution. But if you're married, file a joint federal income tax return, and earn less than your spouse (or nothing at all), the amount you can contribute to your own IRA isn't based on your individual income; it's based instead on the combined compensation of you and your spouse. 

For example, Mary (age 50) and Jane (age 45) are married and file a joint federal income tax return for 2016. Jane earned $100,000 in 2016, and Mary, who stayed at home taking care of ill parents, earned nothing for the year. Jane contributes $5,500 to her IRA for 2016. Even though Mary has no compensation, she can contribute up to $6,500 to an IRA for 2016 (that includes a $1,000 "catch-up" contribution), because Jane and Mary's combined compensation is at least equal to their total contributions ($12,000). 

The spousal IRA rule only determines how much you can contribute to your IRA; it doesn't matter where the money you use to fund your IRA actually comes from--you're not required to track the source of your contributions. (The spousal IRA rule doesn't change any of the other rules that generally apply to IRAs. You can contribute to a traditional IRA, a Roth IRA, or both. But you can't make regular contributions to a traditional IRA after you turn 70½. And your ability to make annual contributions to a Roth IRA may be limited depending on the amount of your combined income.)


While we all hope our marriages will last forever, unfortunately that's not always the case. The issue of how retirement plan benefits will be handled in the event of a divorce is especially critical for spouses who may have little or no retirement savings of their own. 

Under federal law, employer retirement plan benefits generally can't be assigned to someone else. However, one important exception to this rule is for "qualified domestic relations orders," commonly known as QDROs. If you and your spouse divorce, you can seek a state court order awarding you all or part of your spouse's retirement plan benefit. Your spouse's plan is required to follow the terms of any order that meets the federal QDRO requirements. For example, you could be awarded all or part of your spouse's 401(k) plan benefit as of a certain date, or all or part of your spouse's pension plan benefit. There are several ways to divide benefits, so it's very important to hire an attorney who has experience negotiating and drafting QDROs--especially for defined benefit plans where the QDRO may need to address such items as survivor benefits, benefits earned after the divorce, plan subsidies, COLAs, and other complex issues. (For example, a QDRO may provide that you will be treated as the surviving spouse for QJSA purposes, even if your spouse subsequently remarries.) The key takeaway here is that these rules exist for your benefit. Be sure your divorce attorney is aware of them. 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

The HSA - A Powerful Retirement Savings Option

Over the past few years, the health savings account (HSA) has increasingly been referred to as an exceptional retirement savings option. But what exactly are HSAs, who is eligible to open them, and what makes them so great? 

What Are HSAs?

An HSA is a tax-advantaged account that can be used to pay for specific qualified medical expenses. Unlike flexible spending account (FSA) funds, which are designed to cover current out-of-pocket medical costs, HSA funds never expire and can be used to pay for health care expenses before and during retirement.

Generally, contributions to an HSA are tax deductible, the earnings accumulate tax deferred, and withdrawals are tax free as long as they’re used to pay for qualifiedexpenses. Qualified medical expenses include lab fees, prescription drugs, and dental and vision care, as well as the cost of out-of-pocket health insurance deductibles.

You may also use withdrawals from your HSAs to pay for certain insurance coverage, including:

  • Long-term care insurance (subject to specific limits and guidelines)
  • COBRA health care continuation coverage
  • Health care coverage while receiving unemployment compensation under federal or state law
  • Medicare and other health care coverage if you are 65 or older, excluding premiums for a Medicare supplemental policy such as Medigap

If you withdraw funds from an HSA and do not use the money for qualified medical expenses, the withdrawal will be subject to a 20-percent penalty, in addition to income tax. After age 65, however, distributions not used for qualified medical expenses aren’t subject to the 20-percent penalty.

In 2018, the HSA contribution limits are $6,850 for a family account and $3,450 for an individual account. If you are 55 or older you may make an additional catch-up contribution of $1,000 per tax year. Contributions to an HSA can be made for the current tax year any time prior to the tax-filing deadline of April 15.

What Are the Benefits of HSAs?

In addition to their triple-tax-advantaged status, one of the biggest benefits of HSAs is that there is no time frame during which the funds have to be used. As mentioned previously, money in FSAs must be used to cover current out-of-pocket medical costs, and funds not used in one year may expire. HSA funds, on the other hand, never expire, so they can be used to pay for health care expenses now and during retirement. As such, many financial practitioners recommend that you use current cash flow (or FSA funds) to pay for out-of-pocket expenses while maximizing contributions to an HSA and letting the funds grow tax free.

According to a 2017 study by Fidelity, a 65-year-old couple retiring in 2017 would need $275,000 to cover health care expenses throughout their retirement—a 6-percent increase over the 2016 estimate and a 70-percent increase since the study’s inception in 2002. Because the cost of health care in retirement is growing so significantly, it can be among the largest expenses retirees face. HSAs can be an ideal retirement savingsoption to prepare for those expenditures.

Who Is Eligible to Open an HSA?

In order to establish an HSA, you must be covered by an eligible high-deductible health plan (HDHP). For 2018, this is defined as a plan for which the family’s annual deductible minimum is at least $2,700 ($1,350 for an individual), and the annual out-of-pocket costs are limited to $13,300 for family coverage ($6,650 for an individual). You can confirm with your health care benefit provider whether your plan is considered an HDHP that is eligible for an HSA.

Generally, you are not eligible to contribute to an HSA if:

  • You are enrolled in Medicare.
  • You are claimed as dependents by another taxpayer.

Contributions to an HSA may be made by you or your employers. Employer contributions made through a cafeteria plan are generally not income taxable. Your contributions to an HSA are considered “above-the-line” deductions. They can be claimed without itemizing, which is particularly important given the dramatic increase in the standard deduction under the 2017 Tax Cuts and Jobs Act.

Still unsure if an HSA is right for you? Give us a call and we can help you figure it out.