Retirement Planning for Same-Sex Married Couples
In September, the Internal Revenue Service issued Revenue Ruling 2013-17 which clarified when, for federal tax purposes, the IRS will recognize same-sex marriages.
As of September 16, the Department of the Treasury and IRS recognized a same-sex marriage if the couple was married in a state where it is legal. It became the state of celebration that mattered to the feds, rather than the state of domicile.
Now the IRS has released further guidance, which addresses questions regarding certain retirement plans for same-sex married couples. Revenue Ruling 2014-19:
1. Describes when marital status is relevant to the payment of retirement benefits;
2. Outlines how tax requirements for same-sex married couples should be satisfied following the Supreme Court’s decision in United States v. Windsor – in which Section 3 of the Defense of Marriage Act (marriage declared to be between one man and one woman) was deemed unconstitutional – and Revenue Ruling 2013-17; and
3. Provides guidance regarding when retirement plans should be amended for compliance.
Same-Sex Retirement Benefits: The Basics
Now is a good time to review your retirement plan, check your beneficiary designations, and check with your employer to see if the retirement plan will be amended to provide additional benefits to same-sex surviving spouses.
Keep these three things in mind:
1. Ruling 2014-19 is retroactive, applying the 2013-17 definitions of married couples for tax purposes to retirement plans. Remember, it’s the state of celebration, rather than the state of residence that is important now.
So if a same-sex couple married in California and later moved to a state where gay marriage is not recognized – the surviving spouse will still be eligible to receive benefits according to the IRS.
2. If a spouse passes away on or after June 26, 2013, the same-sex surviving spouse will be entitled to profit-sharing and stock bonus plans, and other potential benefits, if the spouse is named the primary or partial beneficiary.
If the deceased participant did not designate a beneficiary, the plan administrator must recognize the spouse (gay or straight) as the default beneficiary.
3. If someone other than the spouse is the designated beneficiary, the surviving spouse whether straight or gay, must have provided written consent to that effect.
If you need more information regarding who to designate as beneficiary for your estate’s assets, please read Designated Beneficiary Assets: Consider Your Income, Capital Gains & Estate Taxes.