| When
it pays to stay single | | |
| Garrett also warns couples not
to forget about how tying the knot could affect private-sector benefits.
"Fewer people get traditional
pensions nowadays, but folks who are now retired historically had
a pension. There are a lot of widows out there who have their husbands'
pensions. If they remarry, they may lose that pension income. Most
seniors know this, but what they don't think about is health coverage,
a big issue now. If you're getting health benefits from a deceased
spouse's coverage, you could lose that, too."
This is not always the case, however. It's best to
check with the pension plan administrator to determine if tying
the knot would result in a loss of pension or health-care benefits.
"I
really hate that people would choose not to get married if they really want to
because of financial issues," says Garrett, "but at least know what
you're getting into." Older couples who are depending
primarily on federal medical coverage also need to assess their marital or nonmarital
situation carefully.
"One of the reasons to get married is to share
benefits if you're older," says Farber. "But the flip
side is that you'll then be subject to the Medicaid claims thereafter."
For example, say you have a house in your name only.
If you're married and your spouse goes into a nursing home, Medicaid
will want to tap your home, assuming there are no other assets to
pay for nursing-home costs, to recoup its expenses, says Farber.
"If you're not married, you remove the house from that exposure.
"When you have one spouse that's going to be on Medicaid and
the non-Medicaid spouse is the homeowner, it makes sense to not
be married at that point," he says. "I've heard of situations
where people even get divorced to prevent exposure of assets they
acquired together as a married couple from being subject to claims
in this situation."
Taxes
and the unmarried couple
By now, almost every taxpayer knows about the
marriage
tax penalty. This tax rate quirk generally affects a couple when both earn
roughly the same amount. "The marriage penalty has been
minimized greatly from what it used to be," says Garrett, "but it still
exists, especially for people who both make a lot of money." And
unless Congress takes action to extend the marriage tax relief, the penalty will
return in full force in 2011. Meanwhile, even with the temporary tax relief for
married couples, there are other tax situations where being single is more fiscally
rewarding. The tax code is fraught with phaseouts and restrictions.
"For example, the Roth IRA contribution limit for married couples is higher
but not double that of two singles," says Farber. "If you're single
and make between $95,000 and $110,000, you can contribute to an account. If you're
married, you can contribute if you make between $150,000 and $160,000. "If
each individual earns $90,000, each can contribute up to the limit unless they
are married. By being married, their joint income will be taken into account and
neither can contribute to a Roth because it exceeds the limit." Married
couples also could face higher tax costs than living-together counterparts if
they own rental real estate. "Write-offs from rental
real estate can be used to offset ordinary income unless your adjusted gross income
exceeds $150,000," says Hobbs. "And that limit is the same, whether
you're married or single.
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