Then in 2015, the Court overturned a lower court decision and required all states to issue marriage licenses to same-sex couples and to recognize same-sex marriages that were performed in other states or territories. This is known as the Obergefell decision.
The combined result of these two rulings is that LGBTQ+ couples can take advantage of federal tax provisions that favor married couples. Advantageous parts of the federal tax code are now available to them, in addition to Social Security benefits, life insurance, tax planning, and retirement and estate planning.
As LGBTQ+ couples learn more about the financial planning available to them, they continue to move into mainstream America. More importantly, they find themselves able to look ahead so that they can take care of each other and their families.
Let's look at some of the major developments that have occurred.
Making spousal health care available for LGBTQ+ couples
Insurance companies are not allowed to refuse healthcare coverage, based on same-sex marital status, for any LGBTQ+ couple regardless of where the couple lives or what state the insurance company is in. Before the Windsor decision, same-sex couples could be co-enrolled in an employer's healthcare plan in states that recognized same-sex marriage, and in other states they would need to enroll as partners that were in a domestic partnership. This created much confusion. For example, a couple that was married in a same-sex state might move to a state that didn't recognize same-sex marriage, and employee health plans would not recognize the union unless it was declared a domestic partnership.
LGBTQ+ couples can now often save money by putting a spouse on a workplace health care plan. Also, they may both benefit from Flexible Spending Accounts, Healthcare Reimbursement Arrangements and Health Savings Accounts. An employer may not refuse to offer these healthcare arrangements to an LGBTQ+ couple. Couples may be eligible to use pretax dollars for health care, and this can mean big savings in ways that were once only available to traditional couples, especially as out-of-pocket health care expenses like deductibles have increased for families. Companies have begun to offer health insurance coverage for children of LGBTQ+ relationships as well.
Note that a same-sex spouse who does not have enough quarters in his/her work history to qualify for Medicare eligibility, can now qualify based on the work history of the other spouse.
Social Security equality and LGBTQ+ married couples
According to the Social Security Administration, LGBTQ+ couples have the right to retirement programs, survivor benefits, and disability payments. Couples who have a child, including through adoption, may be eligible for higher payment amounts.
This means Social Security benefits can be a significant part of financial planning for LGBTQ+ couples. When planning income needs, both members of a married LGBTQ+ couple can consider their eligibility for payments both as individuals and spouses, instead of just as an individual, as in the past.
How LGBTQ+ couples are using IRAs as part of financial planning
For couples that are not recognized as married, the beneficiary must take IRA distributions by the end of the tenth year following the year of death of the original IRA account owner. However, LGBTQ+ couples can now be recognized as married, meaning the surviving spouse does not have to start taking distributions until age 72 or until their spouse would have been 72 (age 70½ if they or their spouse was born before July 1, 1949). This will allow the IRA investment to accrue value and create a better income for the survivor.
LGBTQ+ couples may be able to contribute pretax dollars to a spousal IRA based on their income and eligibility for a workplace retirement plan. This means that in 2020 they may be eligible to contribute up to $6,000, plus an additional $1,000 if they are age 50 or older or will be this year.
Note that contributing pretax dollars to a traditional IRA reduces the current amount of taxable income, so same-sex couples can save on taxes now and defer tax until retirement years, when taxable income will be lower and therefore taxed less.
The contribution figures are the same for a Roth IRA, except that a couple can only contribute if their joint income is less than $206,000. This type of IRA utilizes taxed money, but it potentially eliminates taxes on money that is withdrawn in retirement.
Social Security benefits can be a significant part of financial planning for LGBTQ+ couples. When planning income needs, both members of a married LGBTQ+ couple can consider their eligibility for payments both as individuals and spouses, instead of just as an individual, as in the past.