Janis Cowhey, Tax & Business Services Partner, Featured in The Wall Street Journal Article "New IRA Rules for Same-Sex Married Couples
The Wall Street Journal
More than three months after the U.S. Supreme Court struck down a key portion of the Defense of Marriage Act, known as DOMA, same-sex married couples face some significant changes in the rules involving tax-deferred retirement accounts.
In response to the DOMA ruling, in late August the Internal Revenue Service said it would recognize all same-sex marriages in the U.S. for federal tax purposes. The U.S. Department of Labor issued similar guidance in September. That means same-sex couples with savings tied up in 401(k) plans and individual retirement accounts have some planning to do to make sure they take advantage of the new benefits involved.
That change is “huge,” says Janis Cowhey McDonagh, a partner at accounting firm Marcum LLP in New York.It is a particularly important new benefit for same-sex couples with children. In the past, the survivor, at his or her death, couldn’t leave the inherited IRA to his or her own beneficiaries to take out over their own life expectancies. Now, a surviving spouse could pass the combined IRA along to a child, and “you get another whole lifetime…to defer this tax” and potentially have the assets increase in value, she says.
And “you now can’t be cut out of your spouse’s qualified plan,” including pensions and 401(k)s, which are governed under federal law, Ms. McDonagh says. Previously, same-sex spouses could lose out on 401(k) benefits if they weren’t specifically named as the beneficiary. But now, a spouse shouldn’t lose those benefits unless he or she waives them in writing to the plan, Ms. McDonagh says.