By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott
On June 26, 2013, the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional. The ruling opens the door for same-sex couples who are married under state law to enjoy the same tax benefits that opposite-sex married couples have.
Under DOMA, only opposite-sex couples were considered married under federal law; however its legality was challenged by Edie Windsor. Ms. Windsor and her partner, Thea Spyer, were considered married in New York. Spyer left her entire estate to Windsor, but because of DOMA, the estate did not qualify for estate tax breaks for married couples, resulting in the payment of federal estate taxes of over $363,000. Windsor sued for a refund of those taxes claiming DOMA violated the equal protection clause of the Fifth Amendment of the Constitution.
The Federal District Court and an Appeals Court agreed with her and ruled she was entitled to a refund of the estate taxes, plus interest. The US Supreme court agreed to hear the case.
The Supreme Court ruled that DOMA is unconstitutional by treating legally married same-sex couples differently from married opposite-sex couples. This ruling has an impact on how same-sex couples will be taxed. It also affects IRAs.
The same federal tax benefits that have been available to opposite-sex couples will now be available to same sex couples. These benefits include, among other things, the ability to file a joint federal income tax return, and the ability to claim each other’s tax deductions, for example medical expenses.
With respect to IRAs, many spousal benefits will now also be available. For example, when an IRA owner dies, a spouse beneficiary can do a spousal rollover (or transfer) of the deceased spouse’s IRA to his or her own IRA, and not have to take death distributions until they reach age 70 ½. Now, that option will be available to same-sex married couples. As long as the couple is considered married under state law, the spousal IRA benefits are available.
Other spousal IRA benefits include the ability to make spousal IRA contributions for the nonworking spouse and the ability to split retirement plan assets tax free in a divorce.
The states that currently recognize same-sex marriage are: Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota (effective 8/1/13), New Hampshire, New York, Rhode Island (effective 8/1/13), Vermont, Washington, and the District of Columbia.