Most people think focusing too much on the financial benefits of marriage is unromantic. Yet no matter why you tie the knot, the financial impact of getting married can be substantial, and for many, it's unequivocally positive. Let's look at four of the biggest financial benefits that getting married can bring.
1. Social Security benefits
Social Security offers substantial benefits for spouses. If you're married, you're entitled to receive spousal benefits both after your spouse retires as well as if your spouse becomes disabled. In addition, survivors benefits can give you payments for the rest of your life after your spouse dies.
Spousal benefits are available regardless of whether you worked or not, as long as your spouse accumulated a long-enough work history to qualify for disability or retirement benefits. Typically, you'd be entitled to receive up to 50% of whatever amount your spouse received. Survivors benefits are even larger, with the potential to receive as much as 100% of your spouse's benefit at full retirement age.
In order to collect Social Security benefits based on your living spouse's work history, you need to have been married for at least one year. The required length of marriage is nine months to be eligible to get survivors benefits after your spouse's death.
2. Income tax advantages
Much has been made of the so-called marriage penalty, which can result in higher-income singles paying more in income taxes if they get married. For many people, though, a marriage bonus results from getting hitched.
For low- and middle-income taxpayers, tax brackets are generally set up so that any potential marriage penalty is eliminated, leaving married couples in a no-lose situation. In particular, one-earner families can reap a huge marriage bonus due to the fact that earnings enjoy lower tax brackets for greater amounts of income. Even two-income families can reap a big bonus if disparities in pay are fairly sizable.
3. No estate tax on inheritances
If you have enough wealth to have to pay estate tax, then trying to leave a bequest can come with a hefty price tag. Estate tax rates are currently 40%, meaning that for every $60 that goes to your chosen heirs, $40 could go to the IRS.
If you're married, however, you're entitled to get an unlimited marital deduction for money you leave to your spouse. Moreover, even in the states that still have an inheritance tax, most offer spouses either a full exemption from paying the tax, or much lower tax rates than for non-spouses. Moreover, being married can effectively double the amount of money a couple can leave to future generations, which is especially helpful if one spouse was responsible for building up that wealth.
4. Retirement account strategies
Spouses also get a better deal when it comes to handling retirement accounts. When someone leaves their IRA or other retirement account to a non-spouse, the options that the heir has to start making withdrawals are more limited and generally result in tax getting paid faster.
By contrast, spouses are allowed to roll inherited retirement accounts into their own personal IRAs if they choose. Depending on relative ages and other circumstances, this can dramatically lengthen the time you enjoy tax-deferred or tax-free growth, and that in turn can make it easier to minimize the tax burden of retirement withdrawals.
Getting married for money is generally frowned upon, but there are still many financial benefits of marriage that are worth exploring. Even if you marry for love rather than money, it still pays to know how you can have healthier finances down the road.