Monday, July 8, 2013

My Marital Benefits

This might end up being an explosively charged post here at From 0 to one million, so let me jump right in. The gay marriage debate has taken this country by storm over the last few months. I personally have friends on both extremes of the spectrum that is known as popular opinion. Some were basking in absolute glee and delight regarding the Supreme Court’s decision on DOMA and other friends firmly believe that the Court’s decision single handedly has put America on a fast track to Armageddon.

I know what you are thinking and yes, I agree that I do hang out with some very interestingly cool people.
Nonetheless the Court’s decision has led to a myriad of questions and concerns regarding implementation of these rulings across this country. At its core though, at least from my lens because this is after all a personal finance blog, lies the technical driving force behind the gay marriage movement: Federal Benefits.

So I will highlight a few of the notable federal benefits that my wife and I, as a married couple in this country, currently have at our disposal. And of course at the end of this post I will have a witty and questionably snarky remark to tie everything together J. Please note that this is a general overview and certainly not meant to cover the comprehensiveness that is our country’s ridiculously and dizzyingly intricate tax laws and benefits. So enjoy!

Social Security

Throughout my working life, without my consent, the federal government taxes my income to be earmarked for social(ist) programs. One of these is Social (In)security. So after being automatically taxed on these social(ist) programs my entire working lifetime at the age of 67 I would be able to file for Social (in)Security payments, and would receive these payments from the government without penalty as long as I do not earn over $15,120 in annual earned income.

The central idea in this program is that the government has implemented a forced and automatic retirement savings program on its citizens.

Now I won’t get into the brouhaha that is this flawed system and I will try to stay on point. As a married person when I die my allotted Social Security payment doesn’t die with me. My wife, whether she worked during her lifetime or not, would be eligible during the remainder of her life to receive up to one-half of the amount being paid to me through Social (in)Security. In addition to that if we have children under the age of 18 and I am not anywhere near “eligible” retirement age my wife could still receive a form of benefit payments.

My Take

While Social (in)Security is a “kind” gesture from D.C., I’d rather rely on myself. After having beaten debt bloody with a steel pipe, my wife and I have been each putting 6% of our gross income away for retirement, and in a few years we will take this amount up to 15%. We are currently on pace to have over six million dollars in retirement accounts by the age of 60. I don’t plan on Social (in)Security to provide for my family’s needs after I am gone and I certainly don’t want my wife looking to the government for help financially after I am gone and our earned income years are behind us.

 Tax Credits and IRAs

Now here are some legal marriage benefits that are worth reaping. A married couple with a child under the age of 17 can claim a tax credit worth up to $1,000 as of this year for each child. This also includes stepchildren and adopted children. Now I am all about tax benefits. I personally use every pre-tax program I have access to including participating in my 401k, saving in a health savings account, buying monthly transit passes and buying dental and medical insurances. And we also make annual charitable contributions to certified charitable organizations. So you better believe as soon as we bring a child into our home we will be claiming this credit.

In addition a non-income earning spouse can be eligible to open and contribute to an IRA. So if instead of being D.I.N.K.S (double income no kids) we were S.I.N.K.S (single income no kids), and I were a house husband and my wife brought home the bacon, with her income we could set aside funds to open a ROTH IRA in my name and make contributions to it. This is one benefit that definitely resonates with me and is absolutely one that EVERY married couple should participate in if it fits their situation.

As of this year, whether traditional or ROTH, you can contribute up to $5,500 annually into an IRA. So if only one spouse earns an income your household can still contribute up to $11,000 a year towards a ROTH. And whether you are straight or gay, I am pretty confident that you will agree with me that tax free growth on an investment is pretty sweet. Which leads me to:

Estate and Property Taxes

So here’s the heavy hitter when it comes to federal marriage benefits. Current federal tax law cites that an unlimited deduction is in place for estate and gift taxes when one spouse inherits estate from another. So if say, an imaginary couple (J) were to be debt free before 30 and save and invest at least $2,000 for the next 30 years earning an average annualized return of 12%, by age 60 they would have over ten million dollars in investments. And by the age of 75 that snowball would be so large that if I typed it here you wouldn’t believe me so I’ll just leave that open ended JJJJ! Nonetheless when one spouse in that imaginary coupled died, that decamillionaire household would be able to transfer assets from the deceased spouse to the remaining spouse tax free. Let me type that again. Spouses can inherit the other spouse’s unlimited assets free and clear! And on the transactional side when selling a primary residence, a married couple can reap the benefits of up to $500,000 on capital gains tax free.

The Witty Conclusion?

At the end of the day it is absolutely vital to be aware of the benefits and exclusions that we are able to make use of as taxpayers. But none of what I’ve covered today defines marriage. Contrary to popular belief, when I proposed to my wife I wasn’t nervous because I was hoping she would say yes to the chance of selling our primary residence one day to reap a $500,000 tax free gain. I was nervous because I was (and still am very much so) in love with her and wanted to spend my life with her. From career changes and career moves to building our family to growing in faith to adventures in travel and debt busting and everything in between, I wanted to live my life with her, and I was nervous because I really wanted her to reciprocate the love I had (and still have) for her.

Some of the components that define our marriage include love, devotion, honesty, patience and understanding. A piece of paper with a government seal doesn’t automatically infuse any of these things into a marriage. There are straight and gay couples that are shining examples of healthy and happy marriages. And there are straight and gay couples that are just the opposite and can pen “How to” books on what not to do in a marriage. But what single handedly broke my heart from the Court’s decision was hearing interviews and reading editorials that made the point to say that these rulings made people feel loved and validated.

My friends, the US federal government should never make you feel loved or validated. That’s not their job and that’s not why they exist. Instead that love, validation and support should be coming from friends and family and the love created between yourself and your partner. And if it helps, hopefully the encouraging words of a faint voice in the blogosphere will encourage you on as well.

 Matthew 19:12
Acts 8:26-40

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