Financial Planning For Widows: A Comprehensive 101 Guide

Navigating retirement on your own can be tough, but as a widow you can feel even more susceptible to its challenges. All too often, you’re not only dealing with securing your own future, but also integrating a legacy that’s been left behind.

Thankfully, you don’t have to handle this difficult time alone. In this post, you’ll learn about some of the most important financial planning considerations that come along with becoming a widow. More importantly, you’ll also uncover how you can get the assistance you need to make the decisions that are right for you.

Inheriting A Retirement Account As A Widow

Part of your retirement planning as a widow may involve integrating the retirement plan of your late spouse. If you were named as a beneficiary on your spouse’s IRA or 401(k), there are several options available to you:

Take Ownership: With this option, you can simply take on ownership of your spouse’s IRA. That said, some of the account rules will remain linked to the original owner (i.e. your late spouse). For example, when assuming ownership of your late partner’s traditional IRA, you might need to take the required minimum distributions (RMDs) based on the age of your spouse when they passed away.

Full Withdrawal: With this option, you can choose to receive all your late spouse’s savings directly. Although this option requires you to pay income tax, you won’t face an early-withdrawal penalty, even if you’re accessing the funds before the age of 59½. 

Account Rollover: Using this alternative, you can shift your deceased spouse’s savings to your personal retirement account. When you inherit a traditional IRA or SEP-IRA, the money must be transferred to a traditional IRA. On the other hand, if you inherit a Roth IRA, you can move the funds into your existing Roth IRA. Once transferred, the funds will be subject to the usual rules of your retirement account. 

Insurance Planning For Widows

Insurance requirements for widows can be quite complex, as the loss of a partner often significantly affects the coverage you need. In the following section, you’ll discover possible adjustments to your life, healthcare, disability, and long-term care requirements.

Health Insurance For Widows 

How you navigate health insurance as a widow will largely depend on your age. You’re only eligible for Medicare after you turn 65, so it’s critically important that you have quality, cost-effective coverage until then. Below, you can dive into the health insurance considerations most relevant to you. 

Affordable Health Insurance For Widows 

It’s a shame that so many Americans are overpaying for health insurance. All too often, hefty premiums are seen as unavoidable for quality coverage, but that isn’t always true. It’s imperative that you consider the unique factors that play into your individual healthcare needs. These might include, but aren’t necessarily limited to, your family history, current health, and network requirements.

Be aware of your policy options. If you’re employed, make sure you look over your employer’s offerings as well as outside providers. It could also be worthwhile to investigate the advantages of resources such as a Health Savings Account if a qualifying high-deductible health plan is a good fit for you. If you were on your spouse’s plan and made a change without careful consideration, now may be the perfect time to reevaluate your policy needs. 

Medicare For Widows

When you turn 65, the world of Medicare opens up. This new option often leads to sizable savings, but it also brings its own set of complexities. Before you enroll, you’ll need to think over your benefit choices, premium costs, and out-of-pocket expenses.

As a widow, you might now have had the opportunity to experience this process with your spouse. The idea of having to take it on all yourself can feel overwhelming. Please know you’re not alone, and that you can schedule a free call with us for help. 

Please Note: It’s critical that you have a clear understanding of your most crucial health needs. Some of the care you require may not be covered by Medicare. For that reason, you may also need to explore Medicare Supplemental Insurance (Medigap). 

Widow Life Insurance Considerations

Life insurance needs can shift dramatically when you become a widow. As a result, it’s critical to assess the needs of your new situation. It often makes sense to start by reviewing any received death benefits, your personal policy, and your beneficiaries. 

Consider the following for your life insurance needs as a widow:

Death Benefit Received: If you were a beneficiary of your spouse’s life insurance policy, the tax-free death benefit can significantly impact your own life insurance needs and the sustainability of your retirement.

New Personal Coverage Needs: Life insurance may not be necessary as a widow, depending on factors such as not having children, receiving a substantial life insurance death benefit after your spouse’s passing, or alternative investment goals. However, this may not be the case in your specific situation. You may find that your status as a widow calls for life insurance protections to be put in place (or stay in place) for your loved ones.

Designated Beneficiaries: If you choose to maintain or add life insurance coverage, reevaluate your beneficiaries. If your prior spouse was the main beneficiary, the death benefit will be given to any secondary or contingent beneficiaries mentioned. Without any secondary or contingent beneficiaries, however, the benefits of your life insurance policy could be subjected to lengthy, expensive legal processes.

Disability Insurance For Widows

As a widow, safeguarding your income-generating capacity can be more important than ever. Without a second income provided by a spouse, your lone dollars may be the primary force propelling your retirement. For this reason, it’s very important to consider putting disability insurance in place. 

Disability insurance safeguards your income when it’s most needed. If you become disabled and can’t return to work, you can use it to ensure a stable income stream for a significant period of time. By working with a financial advisor, you can have a thinking partner when conducting a cost-benefit analysis of your coverage options and how to pay for them

Long-Term Care Insurance For Widows

As a widow, it’s particularly important to consider long-term care insurance. This coverage helps protect you against future sickness, assisted living needs, and disability. 

While loving family members and friends might offer some assistance, it’s still wise to have a plan in place. Handling health issues in later years can be an immense emotional and financial strain on your loved ones.

Together, we’ll assist you in preparing for your long-term care needs in advance. We can explore various hypothetical scenarios to make a plan for security across a variety of future potential situations. Additionally, we’ll help manage the substantial costs that can come with this insurance, and work to make sure you’re well-equipped in other vital areas of your retirement.

Social Security For Widows

It’s essential to include Social Security in your retirement. The financial decisions you make will affect the taxes, amount, and lasting value of your social security benefits. That said, as a widow, there are even more considerations you need to take into account. 

As a widow, you need to explore your potential survivorship benefits. These are benefits that may be available to you (and your children) given that your spouse has passed away. 

Your eligibility for survivorship benefits, and the amount you may receive, will depend on your unique circumstances. Factors influencing your survivorship benefits include your age, health, children, spouse’s work history, and others. Take a look at the relevant IRS rules to gain more insight into your potential survivorship benefits. 

Tax Planning For Widows

As a widow, you have unique tax planning considerations, and it’s important that you’re aware of how they can impact your retirement. Namely, you’ll want a keen understanding of the widow’s exemption and the incoming changes in your tax filing status.

Widows Tax Exemption

When your life partner passes away, the IRS provides several special provisions, including the widow’s exemption and the concept of tax exemption portability. At the federal level, these can offer considerable tax breaks on inheritances or gifts from your loved one’s estate.

Tax exemption portability lets a surviving spouse transfer their deceased spouse’s unused exemption amount (DSUEA) for estate and gift taxes to themselves. This transfer, however, is contingent upon a portability election made on a timely filed federal estate tax return (IRS Form 706). This often overlooked provision can make a huge difference, especially for widows with substantial assets.

In addition, surviving spouses can also qualify for a stepped-up basis on any property they’re inheriting. This means that you can sell the property at the cost basis it had when your partner passed away, rather than the one it will have at the time of sale. Moreover, the first $250,000 of profit from the sale will be tax-free.

At the state level, regulations can be more complex, as widow exemption laws can differ. Widows often enjoy a lighter financial load, though, in the form of reduced property taxes. This benefit may last indefinitely or until you remarry.

Please Note: Widow exemption benefits are only applicable to surviving spouses in legally recognized marriages. This includes widows of same-sex relationships with legal state recognition. However, arrangements like civil unions or domestic partnerships don’t qualify for these benefits.

How to Apply for Widow Exemption

While getting ready to submit your taxes, keep in mind that during the tax year of your spouse’s death, you might still have the option to file as “married filing jointly.” This option may provide specific tax advantages for you.

Looking ahead, you can also claim the status of “qualifying widow(er)” on your Form 1040 or 1040-SR for the next two calendar years. Essentially, this status allows you to continue enjoying the tax benefits of filing a joint return, which can be a helpful way to ease your financial transition during this time in your life.

Please Note: Widow exemptions can vary by state, so it’s essential to determine if you qualify for any state tax exemptions. To figure this out, visit your state’s Department of Revenue or Taxation website. You can typically find exemption criteria and other helpful resources there to guide you through the process.

Filing Taxes As Qualifying Widow(er)

A qualifying widow is a recognized filing status by the IRS, and it’s able to provide you additional financial support after you experience the loss of a spouse. That said, it’s first important to make sure you’re eligible for the status before learning about its benefits. 

Qualified Widow Requirements

The IRS has specific rules about who can utilize the qualifying widow filing status. To be eligible, you must meet the following criteria:

Past Joint Return Eligibility: In the year of your spouse’s passing, you need to have been eligible to file a joint tax return. However, whether you did or not doesn’t matter. 

Qualifying Dependent: You need to have a minimum of one dependent, like a child or stepchild (foster children are not eligible), that you can include on your tax return. You don’t need to claim them, but a qualifying dependent must be present.

Spousal Passing and No Remarriage: Your deceased spouse must have passed away within the past two years, and you cannot have remarried during that time.

Prior Payment For Home Upkeep: You need to have paid over half the cost of maintaining your home for the year. These expenses may include mortgage bills, trips to the grocery store, insurance payments on your home, utility expenses, and others. This home must also have been the primary home of your dependent for the year. 

Qualifying Widow Filing Benefits

As a qualifying widow, you can continue filing jointly for up to two years after your spouse’s passing, provided that you remain unmarried. Deciding whether to file jointly depends on your circumstances. 

Potential tax perks of continuing to file jointly for these two years can include more deductions, greater credits, and lower rates. That said your filing status will eventually change to single or head of household, which has its own important considerations. Additionally, if you remarry, you’ll again need to reevaluate the filing status that best suits your situation.

Estate Planning For Widows

You’ve put in so much effort to reach this point in your life, and as a widow, you may have already experienced the profound impact that a financial legacy can have. By working with the right financial team, you can have help in getting your own estate plan in order so that you may have an impact on those you care about as well. 

Key Estate Planning Paperwork For Widows

Gathering the right estate planning documents is fundamental to a well-crafted estate plan. Doing this allows for a seamless transfer of your assets. Your loved ones and the causes you care about will be able to inherit what’s rightfully theirs with minimal complications or taxes. These documents will include your:

Asset Titles & Deeds: These guarantee the proper transfer of your property to the right beneficiaries.

Life Insurance: If still needed, your life insurance can safeguard your loved ones and support the causes close to your heart after your passing.

Medical Power of Attorney: Should you become incapacitated, this document outlines your preferences for medical treatment and interventions.

Financial Power of Attorney: This appoints someone to manage your finances and property on your behalf, which could involve paying bills, investing, and claiming insurance benefits.

Living Trust: Bypass the expensive and time-consuming probate procedure by utilizing a living trust, which accelerates the transfer of assets to the appropriate beneficiaries.

Will: This document clarifies your final wishes regarding your assets and dependents, specifying how your possessions will be distributed after your passing.

How Snowpine Wealth Can Help You Further

At Snowpine Wealth, we aim to form deep and long-term connections with our widowed clients. We understand how overwhelming it can be trying to take on the changes to your taxes, insurance, Social Security, retirement funds, and estate planning. 

But rest assured, you won’t have to walk this path by yourself. By joining forces with Ryan Smith CFP®, you’ll have a financial thinking partner in your corner. Together, you’ll be able to restore your confidence in your financial future and adapt your plan as your needs evolve over time. 

Don’t wait to ask for help during this vulnerable time. Reach out to us at our office by dialing 801-534-4463, or you can schedule a free appointment online.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services not offered through Commonwealth Financial Network®.

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