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The Essence of Retire Secure For Same-Sex Couples – Part 1

In this 9 part blog post series I will discuss along with graphs the essence of my book Retire Secure! For Same-Sex Couples: Live Gay, Retire Rich.

Retire Secure! for Same Sex Couples: Live Gay, Retire Rich quantitatively compares various courses of action. For those who don’t want to read through the explanation and detail, just looking at the 9 graphs could provide critical information with a minimum of reading effort. Please be aware that the recommendations beneath each figure will be advantageous in most situations, but not for everyone.

Taking Advantage of Retirement Plans Rather than Saving Outside Retirement Plans
It’s better to save in IRAs and retirement plans versus saving in after-tax accounts (regular investments outside IRAs or retirement plans).


This graph shows the total net assets* for two identically situated people, except one contributes to his retirement plan at work and the other saves outside the retirement plan. They each have the same earnings, invest the same out of pocket amount at the same rate, have the same tax bracket, spend the same, etc. The difference is dramatic. The lesson: Don’t pay taxes now, pay taxes later—during the accumulation stage while you are working.

Please see page 30 in my book Retire Secure! For Same-Sex Couples: Live Gay, Retire Rich for further details.

* We measure $100 in an IRA as $75 net assets because there is a $25 income tax associated with the $100 IRA. This applies to this and the following graph.


Stay tuned next week where I’ll touch on the Benefits of Spending After-Tax Savings before IRAs and other Retirement Assets.  If you are interested in seeing if you qualify for a free consultation please fill out the form on this page http://outestateplanning.com/what-we-do/ or give us a call at 412-521-2732.

– James Lange

The Impact of Same-Sex Marriage on the Accumulation Years

While you are still working, you shouldn’t pass up the opportunity to contribute the maximum allowable to your retirement plans. Same-sex marriage may afford you additional possibilities to contribute that may not be available to you as an unmarried individual; on the other hand, marriage might also eliminate possibilities to contribute.

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One advantage of marriage comes into play if one member of the couple is not working. This is relevant because you must have earned income to contribute to any IRA, including a Roth IRA. If a couple is not married, and one partner is not working, that non-working partner will not be allowed to contribute to an IRA or a Roth IRA. However, if the couple marries, the nonworking spouse would be able to contribute to an IRA or Roth IRA based upon their working spouse’s income. Marriage makes it possible for the couple to put more money in the tax-deferred or tax-free environment. For example, consider the couple Anne and Susan. In 2014, Anne earns $150,000 per year and is not covered by a retirement plan at work. Susan is not working outside the home. If they are unmarried, Anne can contribute to an IRA, but Susan has no earned income and cannot. If they marry, then both Anne and Susan can each contribute $5,500 ($6,500 if they are age 50 or older) to their respective IRAs.

 

When it comes to Roth IRAs, there is a potential benefit if your income is too high for you to be eligible to make a full Roth IRA contribution. These income limits are different for married and unmarried individuals (refer to table below). You may find that your income is too high for you to make a Roth IRA contribution as an unmarried taxpayer, but you are able to make a contribution as a married taxpayer. For example, consider Anne and Susan again. In 2014, if they are unmarried, neither Anne nor Susan can contribute to their Roth IRAs. Anne earns above the maximum of $129,000 for a single taxpayer and Susan has no earned income. If Anne and Susan marry, then their combined income of $150,000 is under the $181,000 limit for married couples, so they are both permitted to make the maximum allowable contributions to their Roth IRAs.

 

In other cases, marriage may suddenly make you ineligible to contribute to a Roth IRA. You may find that both you and your partner, as an unmarried couple, are both near the upper income limit for single taxpayers and are able to contribute to Roth IRAs; however, if you were to marry and combine your salaries, you may find yourselves above the Roth IRA limits. Consider a different situation for Anne and Susan. In this case, Anne and Susan each earn $100,000 in 2014. As an unmarried couple, they are each eligible to contribute fully to a Roth IRA, because they are each below the $114,000 limit. If they marry, their combined income would be $200,000, putting them above the $191,000 phase-out limit and preventing both of them from making any Roth IRA contributions at all.

 

Gay Marriage, James Lange, Retire Secure For Same-Sex CouplesGay Marriage, James Lange, Retire Secure For Same-Sex Couples, Pittsburgh, PAGay Marriage, James Lange, Retire Secure For Same-Sex Couples, Western Pennsylvania

Finally, if your income exceeds the limitations for a Roth IRA, consider contributing to a nondeductible IRA. You can convert the nondeductible IRA to a Roth IRA the minute after you make the nondeductible IRA contribution. That is exactly what I do personally, in addition to my 401(k) contribution. So, in January, 2014 I made my 2013 and 2014 nondeductible IRA contributions for me and my wife Cindy (even though she doesn’t work outside the home). We immediately made Roth IRA conversions of the nondeductible IRAs. So, we put away a quick $26,000 tax-free into Roth IRAs ($6,500 each for 2013 and 2014), not including what I contributed to my 401(k). Please note this conversion of nondeductible IRA to a Roth without incurring taxable income only works if you don’t have any traditional IRAs. In effect, after the monkey business, it is just like making a Roth IRA contribution, but you have to do the monkey business first to get around the limitation.

 

Because retirement plans allow your money to grow tax-deferred or tax-free, and we have already seen the enormous power of retirement plans, you may want to consider the impact that marriage will have on your ability to contribute to an IRA or a Roth IRA.

 
Retire Secure! For Same-Sex Couples – James Lange, (pages 61-65) www.outestateplanning.com/contact-us 412-521-2732
 

Married vs. Unmarried for Retirement Years

Introduction

There were two identically situated same-sex couples: they had the same amount of money, invested identically, and spent identically too.  There was only one big difference: the first couple did not read Retire Secure! For Same-Sex Couples and plan for their future using our advice, but the second couple did.


The first couple’s plan:

  1. don’t get married
  2. take Social Security at age 62
  3. don’t make Roth IRA conversions
  4. don’t use our IRA and estate planning strategies (they can’t without marrying)

The second couple’s plan

  1. get married (in a state that recognizes same-sex marriage)*
  2. use the “Apply and Suspend” strategy at age 66 for Social Security
  3. make a series of Roth IRA conversions
  4. use our recommended IRA and estate planning strategies for married couples

Here is the difference in their future finances using reasonable assumptions.**

 

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Using the proactive strategies explained in this book, our legally married same-sex couple (the blue line) enjoys a comfortable retirement, and still has $1,427,275 at age 90. The unmarried same-sex couple, who didn’t take our advice, runs out of money at age 90.
 

There are fantastic opportunities for same-sex couples to increase their wealth, cut their taxes, and dramatically increase their financial security and the financial security of their surviving spouse/partner. These opportunities are only available because of the new laws on same-sex marriage that were passed in 2013. This is new territory for same-sex couples—finally, you can take advantage of some of the same long-term planning strategies that have always been available to straight couples.  But, this also means that you can now make the same mistakes that straight couples frequently make, and some of those mistakes could have disastrous consequences for your surviving partner/spouse.
 

Retire Secure! For Same-Sex Couples – James Lange, (pages 9-11) www.outestateplanning.com/contact-us 412-521-2732