When a spouse dies, the survivor's tax bill can jump $136,000 in the first year filing single, even with lower household income. Craig Wear shows how Roth conversions done while married can cut that tax hit to $16,000 and eliminate future required distributions for the widow.
It's a hard thing to think about, but if you're married, one of you is going to file a tax return alone someday. The plan for those years has to be built while both of you are still here. Most couples assume the survivor's taxes won't change dramatically. There's one less person in the house, so if anything changed, it'd be less tax, right? Unfortunately, that's not the case. So if Bill passes first, Susan will be filing single with much narrower tax brackets and a much smaller standard deduction. So let's run through some scenarios if Bill passes at age 90, starting with nothing Susan's first year of filing alone is at age 89. Her income drops, but the tax bill actually goes up $136,000 because she's filing single now with narrower brackets and a smaller deduction. With a custom conversion plan in place, Susan's tax that year goes way down to just $16,000. That's a huge difference. So that's why the years you've got still filing jointly are such a valuable planning window. It really sets your spouse up for success in their hardest years, right? You convert that money into a Roth IRA strategically while you're both still filing jointly. In a Roth, there are no forced withdrawals. She decides when money comes out, and as long as the Roth meets the holding requirements, it comes to her tax-free.
