Author Topic: Case Study: Is there a financial incentive for us to get married?  (Read 6992 times)

ChaseJuggler

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First off, gotta say that I love this forum. It's such a breath of fresh air to meet other people who save money for reasons other than just accumulating more junk they don't need.

Anyway, I (28) live with my gf (32) who is 100% on board with rocking a mustachian life together. We both live very simple, low cost lives (and are diligent about keeping it that way.) We will never have kids, and a wedding is both expensive and unnecessary.

So far, all our finances are separate. If we make a shared purchase like furniture, we just use Venmo to split it 50/50. (Each month, she pays me rent and then I pay the mortgage.) Logistically, we have zero problems with this system. But if there's a significant financial incentive for us to marry, we'll gladly sign some papers.

                          My annual numbers:

Income: $42,000 gross (teacher in NC), $5000ish from side gigs

Approximate annual expenses:

Mortgage interest: $4,600
Property Tax:         $2,000
Mortgage principal: $9,000
Everything else:      $16,000

Assets:

Home: $175,000
Investments: $25,000

Debts:

Mortgage: $140,000      14 years          3.25%

                                  Her annual numbers:

Income: $42,000 gross

Expenses:

Rent: $7,000 paid to me
Everything else: $14,000

Assets: $20,000 in 401(k)

Debts: $10,000 student loans and credit cards.
__________________________________________________________

This year, I itemized deductions and she took the standard deduction. If we filed jointly, would it make any difference in our numbers?

Thanks in advance for any insight!

MDM

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #1 on: February 08, 2015, 05:06:14 PM »
Quote
If we filed jointly, would it make any difference in our numbers?


The best way to tell is by preparing a joint return together.  You won't file it, but you will know the answer.

There are legal and financial advantages to marriage.  E.g., presumption of inheritance, spousal vs. non-spousal inheritance of IRAs, etc.

A wedding need cost only as much as you wish to spend.

Good luck!

kpd905

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #2 on: February 08, 2015, 05:09:37 PM »
What was the total amount you were able to deduct while itemizing?  You might lose that ability when you get married because you'll have to overcome twice the standard deduction.

ChaseJuggler

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #3 on: February 08, 2015, 05:23:51 PM »
What was the total amount you were able to deduct while itemizing?  You might lose that ability when you get married because you'll have to overcome twice the standard deduction.

In 2015, I will probably just barely deduct more than the standard deduction. (damn mustachian problems!) =D


clifp

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #4 on: February 08, 2015, 06:15:16 PM »
As was suggested run TurboTax/favorite tax software and see. 
In general the financial benefits for marriage are greatest when one partner makes a lot more than the other.  E.g. the 50s era traditional marriage working dad, stay at home mom.
So for instance if you made 84K and your wife made 0. You save roughly $4k in taxes by getting married. You'd also do a lot better many years later when collecting Social Security.

They have done a pretty good job in eliminating the marriage penalty,so with your income it probably won't make more than few hundred dollars difference either way.

That said there are a number of situation where married couples are penalized, generally speaking folks who make similar salary do better collecting social security benefits separately.

There is huge a huge marriage penalty when it comes to ACA subsidies.

Assuming you want to retire when you have assets that produce an income of approximately $45K (current expenses),you would be eligible for a large subsidy on health insurance if you both both made say $25K a year and file single, and a fairly modest subsidy of you were married and made $50k.

So strictly financially I'd say there is no good reason, and several bad reasons to be get married..


kpd905

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #5 on: February 08, 2015, 06:17:29 PM »
What was the total amount you were able to deduct while itemizing?  You might lose that ability when you get married because you'll have to overcome twice the standard deduction.

In 2015, I will probably just barely deduct more than the standard deduction. (damn mustachian problems!) =D

You could possibly look into paying double property tax payments in 2015 so you can itemize and deduct more, then take the standard deduction in 2016.

GizmoTX

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #6 on: February 08, 2015, 06:28:31 PM »
There are potentially substantial benefits to being married for creating a spousal trust (which defers estate taxes until both die & protects assets if the survivor remarries) & social security (assuming a marriage of at least 10 years). You'd have to estimate your financial worth at 65+.

We both elected & suspended social security at our full retirement age of 66, which accrues benefits until 70. We then opted to have me collect a spousal benefit based on DH's credits, since his are higher. When we both reach 70, we'll both then collect the maximum amount. This is only possible if married.

ChaseJuggler

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #7 on: February 08, 2015, 06:41:05 PM »
What was the total amount you were able to deduct while itemizing?  You might lose that ability when you get married because you'll have to overcome twice the standard deduction.

In 2015, I will probably just barely deduct more than the standard deduction. (damn mustachian problems!) =D

You could possibly look into paying double property tax payments in 2015 so you can itemize and deduct more, then take the standard deduction in 2016.

That's super interesting... I haven't contributed to my IRAs yet this year though, so I don't think I have enough cash to need anything that clever just yet.

I will throw another question out there though. Is there any reason why I wouldn't want to max out my IRAs for 2014? 15% feels like a small price to pay in exchange for having the money whenever I need it instead of waiting until 60. (I've read in in this forum about techniques to access the money before age 60, but I'm still sifting through it as it's all still very new to me. Are these techniques a sure thing?)

Thanks again for the insight! =)

clifp

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #8 on: February 08, 2015, 07:20:03 PM »


That's super interesting... I haven't contributed to my IRAs yet this year though, so I don't think I have enough cash to need anything that clever just yet.

I will throw another question out there though. Is there any reason why I wouldn't want to max out my IRAs for 2014? 15% feels like a small price to pay in exchange for having the money whenever I need it instead of waiting until 60. (I've read in in this forum about techniques to access the money before age 60, but I'm still sifting through it as it's all still very new to me. Are these techniques a sure thing?)

Thanks again for the insight! =)

In the 15% bracket, you certainly should look at a ROTH IRA vs a traditional if eligible. But in general the power of tax free/deferred compounding really can't be overstated so yes max those suckers.

partgypsy

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #9 on: February 08, 2015, 07:46:59 PM »
Say your significant other was hospitalized and unconscious in the hospital, you would be able to visit her. Ditto for things like will, inheriting any pension/healthcare, whether she would be evicted from your house say something happened.  It's up to you whether these things are worth it. Have a friend who is in a single sex partnership. Although complicated by having adopted children, they had to pay a significant amount to complete paperwork to cover all the contingencies because (at least at the time) they could not get legally married, thus the other partner had no legal rights.

mxt0133

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #10 on: February 08, 2015, 08:38:49 PM »
I will throw another question out there though. Is there any reason why I wouldn't want to max out my IRAs for 2014? 15% feels like a small price to pay in exchange for having the money whenever I need it instead of waiting until 60. (I've read in in this forum about techniques to access the money before age 60, but I'm still sifting through it as it's all still very new to me. Are these techniques a sure thing?)

Thanks again for the insight! =)

There are tons of articles out there for traditional IRA va Roth IRA vs taxable and the math say that investing in tax deferred accounts beats after-tax taxable accounts.

Here is a recent on Roth IRA vs taxable accounts:  http://www.gocurrycracker.com/roth-sucks/

You then brought up the point that you might need access to it but to be honest if you are on this forum are debt free then chances are you will have enough liquid funds, credit, and investments to cover those possible needs.  If you were a regular consumer sucka then keeping funds outside of a 401k or traditional IRA might be advisable.

But for you pre-tax and tax deferred is the way to go.





Terrestrial

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #11 on: February 09, 2015, 07:24:08 AM »
For tax purposes and at those income levels I don't think you'll see much of a change, since your incomes are pretty close. 

If one of you had a drastically larger income I think you'd see more of an effect...alot of my income got dropped down into lower tax brackets when I got married because of income disparity.  It's also the only reason I am still eligible to contribute to a Roth IRA...so in some cases it can make a sizable positive difference.

Also I will second that as some people have said, there are other reasons besides taxes why it may or may not be smart.

caliq

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #12 on: February 09, 2015, 07:49:00 AM »
For tax purposes and at those income levels I don't think you'll see much of a change, since your incomes are pretty close. 

If one of you had a drastically larger income I think you'd see more of an effect...alot of my income got dropped down into lower tax brackets when I got married because of income disparity.  It's also the only reason I am still eligible to contribute to a Roth IRA...so in some cases it can make a sizable positive difference.

Also I will second that as some people have said, there are other reasons besides taxes why it may or may not be smart.

+1

We got married last June when my now-husband's disability started getting really bad and affecting his ability to work and honestly function on many levels.  I was dealing with all the finances and all the medical things, and it became SUPER ANNOYING to have to get him on the phone and say "Yes, she's allowed to speak for me, I know what's going on, just talk to her like it's me" for every little thing.  Especially when dealing with a bureaucracy like the VA, it is such a freaking headache.

Sooooo we got married!  Spent $200 on the officiant, $400 on a pearl ring for me, and sat in our living room with only our puppy to witness :D

We already had a house together and were going to get married anyways at some point; not advocating people randomly get married to save themselves paperwork/phone call headaches, lol.  But it's been a hell of a lot easier for us to deal with general day-to-day stuff. 

Plus the thought of him being hospitalized and me not being able to see him or make decisions is terrifying, especially because he has no family within 1000+ miles of here.  And because his mother is ultraconservative and religious and I have a feeling would not make the same decisions he would in a situation like that. 

If it's relatively tax-neutral, and you haven't/don't want to set up all the legal documents that would provide each other the same rights as a spouse in a medical situation (if those docs even exist?), I would do it.  Unless you have serious concerns about losing half your stache -- but I doubt you'd even be asking the question if you did have those concerns. 

planner10

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #13 on: February 10, 2015, 11:52:05 PM »
The "marriage tax" is alive and well  at higher incomes. At 75 or 80k filing jointly, student loans are no longer tax deductible. Same with the 1k retirement contribution tax credit. At slightly higher levels you can't deduct losses on rental property. AMT is much easier to hit. Just check out the major deductions.  There are many where the phase out incomes are MUCH less than double the single income.

Also can't file taxes for free over 50k. There is a lot more I am forgetting, but am sure my memory will be refreshed shortly.

In general if there is a large income disparity marriage will help. Also helps with legal and social issues if anything terrible were to happen.

Other than those financially it is penalized. Especially as income rises.

dragoncar

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #14 on: February 20, 2015, 05:40:35 PM »
I know I'm late, but try this calculator: http://taxpolicycenter.org/taxfacts/marriagepenaltycalculator.cfm

Sometimes there's a bonus, sometimes a penalty.  High equal earners are more likely to see penalty.


garion

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #15 on: February 20, 2015, 08:24:30 PM »
The "marriage tax" is alive and well  at higher incomes. At 75 or 80k filing jointly, student loans are no longer tax deductible. Same with the 1k retirement contribution tax credit. At slightly higher levels you can't deduct losses on rental property. AMT is much easier to hit. Just check out the major deductions.  There are many where the phase out incomes are MUCH less than double the single income.

Also can't file taxes for free over 50k. There is a lot more I am forgetting, but am sure my memory will be refreshed shortly.

In general if there is a large income disparity marriage will help. Also helps with legal and social issues if anything terrible were to happen.

Other than those financially it is penalized. Especially as income rises.

 My husband and I earn over 80k combined, and I was able to claim a student loan interest deduction. Do you mean over 75-80k EACH? I don't think that'd be an issue for OP, given their incomes and their relatively small amount of student loans...

dunhamjr

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #16 on: February 20, 2015, 10:51:22 PM »
Its not 80k combined, for sure. Because we were around 160k last year and didn't lose our student loan interest or rental property loses.

 Its also not flat income, its either agi or magi, cant remember which right now.

MDM

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #17 on: February 20, 2015, 11:00:45 PM »
At 75 or 80k filing jointly, student loans are no longer tax deductible. Same with the 1k retirement contribution tax credit. At slightly higher levels you can't deduct losses on rental property. AMT is much easier to hit. Just check out the major deductions.  There are many where the phase out incomes are MUCH less than double the single income.

Also can't file taxes for free over 50k. There is a lot more I am forgetting, but am sure my memory will be refreshed shortly.

In general if there is a large income disparity marriage will help. Also helps with legal and social issues if anything terrible were to happen.

Other than those financially it is penalized. Especially as income rises.

 My husband and I earn over 80k combined, and I was able to claim a student loan interest deduction. Do you mean over 75-80k EACH? I don't think that'd be an issue for OP, given their incomes and their relatively small amount of student loans...
The bolded part is wrong.  See "Student Loan Interest Deduction WorksheetóLine 33" in Form 1040 instructions.  You get 2X the income allowance for MFJ as you do for single with respect to SL interest deduction.

ClaycordJCA

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #18 on: February 20, 2015, 11:51:26 PM »
As others have said, there may be legal reasons other than tax consequences to get married. Do you have a will?  Is your SO the beneficiary?  If not, she gets nothing if you pass. If you don't have a will, the same. Do you have a healthcare directive?  If not, she has no say in your care.  So, if you become comatose, she may may not be able to see you, your family could become legally responsible for your care, evict her, sell your house and move you across the country. Likely, no. Possible yes. If you don't get married, assuming your state recognizes them, there will be costs associated in ensuring that she has the same rights as if you were married.

dragoncar

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #19 on: February 21, 2015, 12:54:11 PM »
As others have said, there may be legal reasons other than tax consequences to get married. Do you have a will?  Is your SO the beneficiary?  If not, she gets nothing if you pass. If you don't have a will, the same. Do you have a healthcare directive?  If not, she has no say in your care.  So, if you become comatose, she may may not be able to see you, your family could become legally responsible for your care, evict her, sell your house and move you across the country. Likely, no. Possible yes. If you don't get married, assuming your state recognizes them, there will be costs associated in ensuring that she has the same rights as if you were married.

Yeah, last time I checked our penalty it was around $4k.  There are plenty of other benefits -- lower insurance, etc., but I don't think they make up for the penalty.  Social security and estate benefits can be had by getting married AFTER (or just before) you retire.  Then there's no penalty at all.

If I stop working before my wife, we will likely get a substantial marriage bonus.

scrubbyfish

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Re: Case Study: Is there a financial incentive for us to get married?
« Reply #20 on: February 21, 2015, 01:14:20 PM »
Reading quickly... Has it come up as to whether your region already requires you to file jointly? Depending on your region's laws, the decision to file singly or jointly after a period of living together is made for you.