In June 2013, the United States Supreme Court ruling struck down key parts of the Defense of Marriage Act (DOMA), which previously defined “marriage” as limited to a man and a woman, with  “spouse” limited to opposite-sex partners.

Providing further guidance on how this ruling will be implemented, the Treasury Department and the IRS, issued new guidance specifying that same-sex couples who marry within jurisdictions that recognize their marriage will be treated as married for federal tax purposes – regardless of the rules of the jurisdiction in which they reside.

For instance, if a same-sex couple who lives in a state that does not recognize same-sex marriage, gets married in a state that does recognize same-sex marriages, their marriage would be recognized for federal tax purposes.

Some practical effects of these new IRS rules specific to retirement issues include the following:

  • Same-sex couples can take advantage of spousal-IRAs where a working spouse can contribute up-to the maximum annual contribution for a non-working spouse
  • Same-sex spouse beneficiaries will qualify for more favorable spousal treatment under required minimum distribution (RMD) rules for retirement accounts
  • Same-sex spouses will be able to transfer IRA and retirement plan assets tax-free upon divorce
  • Same-sex spouses named as beneficiaries on their spouse’s IRA will be able to assume the account – that is, treat it as their own. A spousal beneficiary also can roll over distributions from a deceased spouse’s account in an employer-sponsored retirement plan into an IRA in his/her own name
  • Qualifying hardship distributions from a 401(k) plan will include distributions to pay for medical care, tuition, and burial costs for a same-sex spouse
  • Legally married same-sex spouses, regardless of where they reside, will have spousal consent rights under employer-sponsored retirement plans that previously were available only to opposite-sex spouses. This means same-sex spouses who want to designate someone other than their spouse as their beneficiary will need to get their spouse’s consent to do so

However, civil unions and other domestic partner relationships are not recognized under these new IRS rules.  For more details on these rules, visit www.IRS.gov. State law tax treatment may vary.

Meanwhile, it may be worthwhile to speak with your Financial Advisor to determine if these changes make the benefits of tax-advantaged saving more broadly available to you and your partner.

 Tip 

Speak with your Financial Advisor to determine if these changes make the benefits of tax-advantaged saving more broadly available to you and your partner.

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