Negative Tax Consequences for Surviving Spouse
If your retirement plan for your spouse is to leave a huge 401(k) behind, be aware of the tax consequences. Assuming you no longer have dependent children at the end of your life, your surviving spouse will have to change their filing status from “married filing jointly” to “single.” This means the 401(k) withdrawals your surviving spouse takes will likely be taxed at a higher rate — in some cases, much higher.
For example, as of 2019, if you earn $205,000 as a couple — including your 401(k) distributions — you’re taxed at a 24% rate. If you’re single, that rate jumps to 35%. Even on smaller amounts, the jump can be dramatic. If you’re earning $40,000 as a couple you’re in the 12% bracket, but if you’re single, you’ll pay 22%.
