A financial to-do list for same-sex couples

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It’s been a year since the Supreme Court struck down part of the Defense of Marriage Act of 1996, a ruling that allows people who live in states that allow same-sex marriage to receive the same federal benefits as heterosexual couples. In that time, much has changed. Today, 19 states and the District of Columbia allow same-sex marriage, up from 11 states (and DC) a year ago. The IRS, in response to the DOMA ruling, now recognizes all same-sex marriages in the U.S. for federal tax purposes.

And just last week, the Obama Administration extended more benefits (including plans to let government workers across the country take leave from their jobs to care for their spouses) to same-sex workers.

“It’s been a very exciting time,” says Kyle Young, senior vice president and investment officer with Wells Fargo Advisors, who specializes in working with the LGBT population. Wells Fargo (WFC) recently surveyed nearly 900 LGBT investors – some married, some not – to see how they were feeling about their finances in the midst of all the changes.

“Some of the information was encouraging,” Young said, citing the 95% of respondents who could “fully identify” what the law was in their state. But other results were disconcerting in that they laid bare the fact that – like heterosexual couples – same 83% of sex couples (including 67% who are in legal same-sex marriages) don’t really understand what the changes in the law mean to them.  “The community has been given all of these new tools and rules and regulations,” but not the education to deal with them, says Michael Wallman, a Miami-based financial planner who specializes in LGBT financial matters.  As a result, they’re likely not doing anything about it. Worse, many aren’t even talking about it; just 37% say new marriage laws have teed up financial conversations.

So, with the anniversary of the decision as background, a financial to-do list for same sex couples to ponder – and perhaps pursue.

Consider a spousal IRA

When you’re married, you are allowed to make an IRA contribution based on your spouse’s income – even if you don’t have an income yourself.  For 2014, the contribution limits are $5,500 for individuals under age 50 and $6,500 for those 50 and over. This applies whether you contribute to a traditional or Roth IRA; married couples filing jointly can make a full contribution to a Roth as long as their modified adjusted gross income is less than $181,000.

Revisit beneficiary designations 

Beneficiary designations are more complicated than people think – but very important. On IRAs, for example, the beneficiary designation overrides what’s in your will. If you want to name your new spouse as a beneficiary, do it on the account itself.  If, on the other hand, you have a workplace retirement account, like a 401(k), your spouse is entitled to inherit those assets – unless he or she disclaims them (that requires a form, too). If you have children or a previous partner that you want to inherit instead, you have to do the paperwork to make sure this happens.

You need a Social Security strategy

This is something heterosexual couples are just now coming to terms with; it applies to same sex couples in states that have legalized marriage as well. In general, if you’re married and one spouse earns significantly more than the other, you’ll want to maximize the higher earner’s Social Security as much as you can (which means delaying when that person takes it.)  That way, if and when the higher earner passes away the surviving spouse can get 100% of the higher earner’s benefits rather than just his or her own.

Pay attention at open enrollment time

The rules for same-sex spouses are kinder than they are to partners when it comes to health insurance. This is easiest explained by example. Before the Supreme Court ruling, if you wanted to put your partner on the health plan from your company it would typically be allowed – but the value of that benefit would be added to your “income” for IRS purposes and you would be taxed on it. Now, that’s no longer the case. Your company may charge you to have a spouse on the plan (that’s the company’s prerogative) but the playing field is now level. What this means is that if you decided to stay on your health plan (or your spouse on his or hers) because you didn’t want to be taxed on that benefit, you should take another look.

Consider filing jointly (and amending past returns) 

According to the Wells Fargo research, 18% of same-sex couples file their taxes separately, compared with 3% of the heterosexual married couples in the country. That’s often a mistake and it’s why Elisha Wiesenberg, a California CPA, says amending past returns is the first thing he talks about with couples when they walk through his door.  “’Only a narrow slice of couples benefit by not filing an amended return. [It’s] especially beneficial if one spouse is making a lot more than the other one, or if one partner wasn’t working at all.” Indeed, of the Wells survey respondents, 28% found that filing jointly cost them more money; 52% found it cost them less – and that their federal tax liability dropped by an average $2,000. That’s the marriage penalty at work. “A lot of [couples] just don’t keep the marriage penalty in mind, because it never applied to them,” Wiesenberg said. “All of a sudden, they have to account for that.”

Steven Goldstein contributed to this report.

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