Since it's been a year since my dad passed I am fully into managing my mom's finances. I let her use her tax person one more year. I may even let her use him another year. He's a nice guy and I'm not sure I'm up to doing it. That being said we had a little scare today about it.
Since my dad passed in March 2024, tax planning was a bit weird. It was hard to estimate things and I did a small conversion from his IRA to a roth because my parents had space in their bracket. They were in the 22% bracket. I spent the last few years converting their money in this bracket because of the upcoming scenario. I'm sharing because I'm sure there are a lot of people around this age probably not thinking about it and they too will be hit with this.
My mom being widowed and suddenly being hit with an RMD and income as a single person. My mom is a retired state worker. But because of that her pension is large. With SS and her pension she starts her income at $105k. Then add in an RMD and she's looking at $125k. Then add in dividends or interest and she's closing rapidly on the second level of IRMAA $133k.
Fortunately for my mom her state medical covers the medicare premiums. So she can have irmaa and not worry about the extra premium. But for most people it's a big deal. Fortunately I had a few years of being able to shift things around and get my mom out of a larger RMD by taking advantage of my parents MFJ status and converting more money out of the IRA into a Roth.
That being said my mom is now stuck with a couple of homes, which she fortunately inherited at a partially stepped up basis. That will help ease the capital gains if she happens to sell. But when that happens, unless she passes in the house and my kids fully inherit the house and condo stepped up, my mom will be slammed with massive capital gains.
How do I view that? Well I figure I'm fine. My kids are set (either which way). So if my mom wants to sell her house and buy a different condo then we'll cross that bridge when it comes to it.
But for many people who are MFJ, perhaps look at your RMDs, pensions, SS, and determine if one of the couple happens to pass, what happens to the other surviving spouse tax wise. Will you leave them in a bind? Or will they have enough to sustain themselves? Or will they be in a cycle of draining more of an IRA to get out of the tax predicament caused by becoming single.
I will admit my mom went from being married and not worrying about money to being single and not worrying about money. She now freely admits to my aunts and the tax guy (he asked her if I really paid her taxes by CC and gave her a monthly allowance on top of the pension and SS). The answer is yes. Money comes in and she doesn't see the taxes or investments. She gets $x like she wants and if she wants more I give her whatever she wants. The tax envelope comes in and she tosses it in the box still and I told her give it to the guy. I also uploaded her estimated payments to him. Like I said I am not sure I'm ready in doing her taxes too. I figure she can go see someone and sign it at least.
Although he tried to roll her refund (i made sure to give her the same amount that she's used to getting back), to next year. But she was a bit upset so I told her to turn around and drive back and tell him to give her the normal refund. Like I said my mom likes to see the same amount come in. She even turned off withholdings because she wants the same amount of money as before my dad passed and I told her I'd cover the taxes from her investments, which I do.
I wonder if I'll let my kids pay my bills? Next up automating her payments by check and CC. I've gotten some done (like water, electric, cable, phone) and I got her an amazon CC to only use for amazon.
March 12th, 2025 at 12:32 pm 1741782752
March 12th, 2025 at 05:49 pm 1741801761
People seldom think through the tax implications of getting married - especially if one is low income with kids and benefits from a lot of government programs, or is a widow /widower receiving pension benefits from the deceased spouse.
The same for planning for death of either spouse, or for decisions about investments and social security.
The fact that the rules change way too often complicates it.
Money literacy is so lacking, and many think it is just too hard for them to understand.
Your mother is lucky to have you.
March 13th, 2025 at 08:37 pm 1741898258
March 16th, 2025 at 03:26 pm 1742138786
The "widow's penalty" is real--at my firm, we forewarn our clients and try to do some planning ahead for it, but there may be only so much you can do.
At least the capital gains on sales of a condo will be a tax hit in only one year, and at the cap gains rates. It's real but time-limited.
IF your mother has charitable intentions, we sometimes suggest that clients make a contribution to a donor-advised fund in the year of a big expected tax hit, and/or do qualified charitable distributions from their RMDs, but that only works as long as charitable intention is there. Of course, given a choice between paying Uncle Sam or paying a charity of choice, some people who were not charitable in earlier years might do some charitable giving to mitigate the tax impact.