• Federal Income Tax Brackets (Single vs. Married)
• Roth Conversions Part 1: What, How, and Why
• Navigating Required Minimum Distributions
• Should I Inherit My Deceased Spouses IRA?

A few months ago, we met with a woman named Susan who had recently lost her husband. She was still processing the grief, still adjusting to life alone after 43 years of marriage, and then she got her first tax bill as a widow. Naturally, she was confused and frustrated, asking us why her federal tax bill had jumped by nearly $9,000 when her income hardly changed.

Same retirement accounts, same required minimum distributions, dividends still hitting her account every month, but the IRS was now treating her as a single filer, and that one change had meaningfully increased her tax burden.

The unfortunate reality is that this situation was mostly preventable. If Susan and her husband Robert had made a few strategic moves while they were both still alive, she could have saved well over $100,000 in taxes over her lifetime. But nobody walked them through what happens to the surviving spouse’s tax bill when one partner passes away

And Susan’s story is far too common, so today on the show, I’m diving into what’s known as the widow’s tax trap, a structural feature of the tax code that can catch surviving spouses off guard and spike their tax bill when they’re most vulnerable.

More importantly, I’m sharing a framework you can use to protect your spouse from this outcome because the planning has to happen while both of you are still alive. Welcome to another episode of the Stay Wealthy Retirement Show.

I’m your host, Taylor Schulte, and every week, I tackle the most important financial topics to help you stay wealthy in retirement. And now, on to the episode.

What Happens to Your Taxes When a Spouse Dies (And How to Plan Ahead)

Before we get into the details, I want to quickly acknowledge that the widow’s tax trap, the topic that we’re discussing today, does not meaningfully impact everyone.

In fact, some academic research suggests that for many retirees, the actual dollar impact can be relatively modest when you look at it in the context of total retirement income and the reality that household expenses often decline after one spouse passes away. And I’ve seen situations where someone reads an article or hears a podcast episode on this topic and overreacts, rushing to take aggressive action that doesn’t actually improve their situation and in some cases, can make things even worse. So I just want to make it clear that the goal of today’s episode is not to create fear or suggest that everyone needs to overhaul their retirement strategy. That’s not helpful and it’s not how good planning works.

The point is to highlight a situation that did cause a negative outcome and to bring awareness to a planning topic that often gets overlooked until it’s too late. Because even if the tax hit doesn’t significantly change the long-term success of your retirement plan, I promise you, I promise you, nobody likes tax surprises even when they can afford them.

And in my experience, simply understanding what happens when one spouse passes away, how the tax rules change, and how today’s decisions can ripple into the future goes a long way toward helping retirees feel more confident and in control.

Now, in a future episode, I’ll get a bit more into the nerdy details and explain why the widow’s tax trap doesn’t always result in a significantly negative outcome. There is no one-size-fits-all answer here. What matters most is planning ahead, modeling different scenarios proactively, and revisiting those assumptions year after year to ensure that you’re making educated and informed decisions, not reactive ones.

With that context in mind, let’s walk through the mechanics of how the widow’s tax trap actually works.

And let’s start with a very basic question. Why, in certain situations, does the tax bill often increase so much after one spouse passes away? Well, it’s not because the surviving spouse suddenly starts making bad financial decisions. It’s because they’re running head first into a set of tax rules that most retirees don’t even realize exist until they’re living through them. The biggest driver here is something called tax bracket compression.

When you go from filing taxes as married filing jointly to filing as a single taxpayer, your tax brackets don’t just change a little bit. They essentially get cut in half. And here’s the important nuance that can catch surviving spouses off guard.

Retirement income usually doesn’t get cut in half at the same time. Consider the typical retirement income sources. Social Security typically continues at the higher earners benefit. Required minimum distributions from traditional IRAs don’t stop just because one spouse passes away. And pension income often continues at 50%, 75% or even 100% depending on the survivor option that was elected. So you have this mismatch.

Income stays relatively stable, but the tax brackets shrink dramatically. To put some numbers around this, as a married couple filing jointly, the 22% federal tax bracket currently goes up to roughly $211,000 of taxable income.

As a single filer, that exact same 22% bracket tops out at about $105,000. Same tax bracket, half the room. That means if you’re a surviving spouse with say $120,000 of taxable income, you’re now pushed into the 24% bracket and creeping closer to the 32% bracket.

Just one year earlier, as a married couple, that same income sat comfortably in the 22% bracket with a much lower overall tax bill. And this is the heart of the widow’s tax trap.

Most couples build their retirement plan assuming they’ll file jointly forever. They look at the numbers and say, we’ll have $140,000 a year from Social Security and RMDs and our pension. We’re in the 22% bracket. Everything looks fine. What often gets missed is modeling what happens to the survivor because when one spouse dies, the income doesn’t always fall very much, but the tax brackets absolutely do.

So let me walk you through a more detailed example using Robert and Susan, the couple that I mentioned at the top of the show.

Robert and Susan were both 68 when they retired with $2 million in traditional IRAs, $400,000 in Roth accounts, and $300,000 in taxable brokerage accounts. On an annual basis, their total taxable income was right around $142,000. About $62,000 of that came from Social Security split between the two of them, and the remaining $80,000 came from a combination of RMDs and portfolio withdrawals.

As a married couple filing jointly, their federal tax bill was roughly $18,000 per year. Nothing shocking, taxes felt manageable, and from their perspective, the plan was working just fine. But here’s the part they hadn’t fully accounted for. When Robert passed away at age 79, Susan’s income didn’t fall nearly as much as you might expect. In fact, it only dropped by about $14,000, down to roughly $128,000 per year.

She continued receiving the higher of the two Social Security benefits, which was about $38,000. The RMDs didn’t stop, and because the IRA had grown over the years, her required distributions were actually higher, around $90,000 per year. So now Susan is a widow, filing as a single taxpayer with about $128,000 of taxable income. And because there was no proactive planning around this transition, her total tax bill jumped to over $27,000 per year.

That’s roughly $9,000 more in taxes every single year, not because she was spending more, not because her income exploded, but simply because she was now filing as a single instead of married filing jointly. Stretch that out over a 15-year period of widowhood, and you’re looking at roughly $135,000 in additional taxes.

That’s money that could have stayed in Susan’s pocket, remained invested and growing, been set aside for her heirs, or gone to the charitable causes she cared deeply about. And that’s an example of the widow’s tax trap in action.

Now, when Susan came to us after Robert had passed away, there honestly wasn’t much that we could do to change her situation. The tax brackets had already compressed, the filing status had changed, and most of the planning levers we would normally use were no longer available. And while we certainly wish they had come to us 10 years earlier, this is still a helpful situation to walk through because it shows what could have been done while Robert was still alive. So here’s what a different approach might have looked like.

Starting at age 68, while they were both still alive and filing jointly, Robert and Susan could have intentionally accelerated their IRA withdrawals instead of only taking the minimum required amounts. Rather than pulling roughly $80,000 per year from their pre-tax IRA, they could have withdrawn closer to $95,000. The extra $15,000 would not have been spent. It would have been converted to a Roth IRA each year.

Now we learned that Robert and Susan were fairly conservative planners, and given that, they likely would not have been comfortable with large or aggressive Roth conversions during their gap years. And that’s important to point out because this isn’t an example of pushing the limits. Even modest Roth conversions, something like $15,000 per year, done consistently over time, can still make a meaningful difference.

By paying tax on those dollars while they were still married and squarely in the 22% bracket, they would have been taking advantage of the wider tax brackets while they still had access to them. If they had followed this approach for the 11 years before Robert passed away, they would have shifted an additional $165,000 from traditional IRAs into Roth accounts. And that would have materially changed Susan’s situation as a widow.

Her Social Security income would still have been about $38,000, but her required minimum distributions would have been closer to $72,000 per year instead of $90,000 simply because the traditional IRA balance would have been smaller. So instead of having about $128,000 of taxable income as a widow, she might have been closer to $110,000. That one difference would have dropped her tax bill from roughly $27,000 down to about $17,000, a $10,000 difference every single year.

Over a 15-year period of widowhood, that works out to roughly $150,000 in federal taxes saved. Same retirement, same lifestyle, same spending, just different tax punning during the years when both spouses were alive. Because again, once one spouse passes away, your planning options narrow dramatically, and many of the most effective strategies are no longer on the table. And that’s why the years when you’re both alive and retired are so important.

This period is often called the married window, and you can kind of think of it as a use-it-or-lose-it opportunity. During this window, you have options. You can accelerate income without immediately pushing yourself into higher tax brackets.

You can convert pre-tax IRA dollars to Roth at relatively lower rates. You can harvest capital gains at favorable tax levels. And most importantly, you can control the timing and size of those decisions. But what often happens instead is very understandable. Couples retire and think, you know, we’ll just take what we need. Why would we voluntarily choose to pay more taxes now?

As a result, they approach taxes in a vacuum, attempting to keep taxes low one year at a time without considering the future. They minimize withdrawals, they avoid roth conversions, and they let the traditional IRA continue to grow and grow.

Then, one spouse passes away and suddenly, the surviving spouse is facing a much higher tax bill, one that might have been reduced with proactive planning. Naturally, the couples who navigate this most successfully don’t wait for the problem to show up. They plan proactively during the married window with the explicit goal of protecting the surviving spouse before the situation becomes fixed and the planning options narrow.

Based on my experience working with retirement savers, there are three very common patterns I see over and over again that tend to lead people straight into the widow’s tax trap.

1.) The first is having the majority of your retirement savings concentrated in pre-tax accounts, things like traditional IRAs and 401Ks. When most of your money sits in pre-tax accounts, your flexibility is limited. Every dollar of required minimum distribution shows up as taxable income, and there’s no way to blend in tax-free dollars to manage your tax bracket.

This is exactly why Roth conversions can be so powerful during your gap years, and while both spouses are still alive. Having money spread across different account types, pre-tax, Roth, and taxable, creates tax diversification and gives you far more control later in life. If you’re still married and in your 60s or early 70s, this is often the ideal time to consider converting or at least tax-efficiently pulling money out of traditional accounts while you still have access to those wider married filing jointly tax brackets.

2.) The second mistake builds on the first, which is underestimating how required minimum distributions affect the surviving spouse. Most couples run retirement projections assuming both spouses will be taking RMDs together forever. But when one spouse passes away, the survivor usually inherits the entire IRA, and now one person is taking RMDs on the full combined balance as a single tax filer. Once that happens, there’s very little flexibility.

The distributions are mandatory, the tax brackets are now smaller, and many planning options are already gone. That’s why proactive RMD management while both spouses are alive is so important. The goal is not just lowering taxes today. It’s intentionally reducing the size of the pre-tax IRA when and if it makes sense, so the surviving spouse is not forced to hire taxes later when they have the least control.

3.) Lastly, the third common mistake is not fully accounting for how Social Security changes when one spouse dies. When one spouse passes away, the surviving spouse keeps the higher of the two Social Security benefits, and the smaller benefit disappears entirely. So if one spouse is receiving $38,000 per year, and the other is receiving $28,000, the surviving spouse ends up with the $38,000 benefit. That means household Social Security income drops from $66,000 to $38,000.

And many people instinctively assume that less income means lower taxes. But in practice, that’s not typically what happens. RMDs don’t change, pension income doesn’t necessarily disappear, and dividend and interest income usually continues at roughly the same level.

So, while total income might fall by 10% or maybe 20%, the room available in your tax brackets just got cut in half. And this is exactly why modeling the survivor scenario as part of your ongoing tax and retirement planning is so important. What will the surviving spouse’s income look like? What tax bracket will they be in as a single filer? How much more will they owe in taxes? And what can be done today to reduce the chances of falling into the widow’s tax trap later?

If you’re not regularly running these numbers and revisiting planning opportunities year after year while both spouses are alive, you’re making decisions, potentially very costly decisions, without taking the full picture into consideration.

As we wrap up, I want to reinforce the spirit of today’s conversation.

The widow’s tax trap is real, and in certain situations, it can create an ongoing tax drag for the surviving spouse. But it’s not universal, and it’s not something that automatically upends an otherwise solid retirement plan. As I mentioned at the beginning, some academic research suggests that in many situations, the long-term impact is often more modest than people expect, and I’ll be digging into that nuance more deeply in a future episode.

If there’s one broader point I want to leave you with, it’s that understanding the widow’s tax trap is less about predicting a worst-case outcome and more about avoiding unnecessary blind spots.

When couples understand how filing status changes, how tax brackets compress, and how different income sources behave after one spouse passes away, they’re able to plan more intentionally during the years when they still have flexibility.

And even when the financial impact ultimately turns out to be manageable, that awareness alone can go a long way toward helping retirees feel more prepared, more confident, and more in control of what lies ahead.

Thank you as always for tuning in, and once again to view the research and resources supporting today’s episode, just head over to youstaywealthy.com/267.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.