The least-studied areas of human development are those make us uncomfortable. Few events are more traumatic than losing a spouse. But thoughtful advance tax-planning strategies can provide some stability when it matters most.

Death is uncomfortable to plan for, but ignoring it doesn’t make it cheaper. Here’s what to know.

Baseline: If it’s a wash, why lock it in?

If nothing in tax law or life ever changed, paying taxes now or later would be a wash, and converting a traditional IRA to a Roth wouldn’t gain you anything. But real life doesn’t work that way. Your tax rate, your income and even your filing status is likely to change at some point. Today’s historically low tax rates could vanish, and the benefit of joint filing will disappear if you’re widowed and filing single.

That’s why locking in today’s tax rates while you still have those lower joint rates should be a core part of tax planning for high-income couples. You’re essentially prepaying tax at a bargain rate as part of a long-term tax-reduction strategy to spare your surviving spouse, or your future self, a much bigger tax hit later. Think of it as a tax “prenup” with Uncle Sam that you settle up on your terms so the surviving spouse isn’t ambushed by higher rates down the road.

What is the ‘widow’s tax’ penalty?

When one spouse dies, the surviving spouse’s tax situation changes dramatically. The widow’s penalty is not a separate tax, but rather the combined effect of several changes that can leave a surviving spouse with less income and a higher tax bill. Here’s where it starts to hurt:

• Higher tax brackets (lower filing status): After a spouse’s death, you file as single. Single filers get roughly half the income per tax bracket and only about half the standard deduction of joint filers. Income moves into higher tax brackets more quickly, with less of it shielded from taxes.

• Less Social Security income, more of it taxed: The survivor has only one Social Security benefit, which means a drop in household income. And the tax thresholds for Social Security are lower for single filers, so a larger part of that remaining benefit can become taxable.
• Higher Medicare premiums: Medicare IRMAA surcharges kick in at much lower income levels for single filers. The same income that did not trigger Medicare surcharges for a couple filing jointly can trigger them for someone filing single.
• RMDs and other income hit harder: Required minimum distributions keep coming whether you want them to or not, and household expenses rarely drop by half. That can push a surviving spouse into a higher tax bracket.

In short, the widowed taxpayer often faces a double whammy: Income often falls while tax rates increase. This isn’t a special penalty, just the structure of the tax code, and it can lead to meaningfully higher costs at a time when cash flow is already tighter

How to get ahead of the game

There are a few tax-saving strategies you can employ whether you have a high income or are planning early retirement, often as part of year-end tax planning, to soften the impact of the widow’s penalty:

Do Roth conversions while married: Convert portions of your traditional IRA or 401(k) to a Roth IRA while you still qualify for the lower joint tax brackets. You’ll pay some tax now (at today’s rates) in exchange for reducing future taxable RMDs. This tax-reduction strategy can keep a surviving spouse’s taxable income and Medicare premiums lower later. Not to mention that Roth IRAs are not subject to required minimum distributions.

Maximize the final joint return: In the year of a spouse’s death, there is one last opportunity to file jointly. Consider accelerating income into that year (e.g. doing a larger Roth conversion or realizing investment gains) as part of thoughtful end-of-year tax planning to take full advantage of the higher joint bracket one last time. Next year, as a single filer, the surviving spouse will face higher tax on the same income, making this potentially their last bite of the low-tax apple.

Delay claiming Social Security for a bigger survivor benefit: If the higher-earning spouse waits until age 70 to claim Social Security, the surviving spouse will later receive a much larger benefit for life. A bigger survivor check (at most 85% taxable) means more money coming in that isn’t fully taxable, potentially reducing how much extra needs to be withdrawn from other accounts.

Downsize (thoughtfully): Moving to a smaller home or a more affordable area can lower expenses, which helps offset the loss of income. From a tax perspective, selling your primary home within two years of your spouse’s passing lets you keep the full $500,000 home-sale capital-gains exclusion (versus $250,000 if you wait longer than that and file as single). This is a practical example of how to save money on taxes while also freeing up funds to bolster your retirement nest egg.

Next steps: It may feel morbid to plan for life as a widow or widower, but smart advance tax-planning strategies mean facing the “what-ifs.” Losing your spouse may not double your taxes, but the increase is real. The good news is a little planning now, using proven tax strategies for the wealthy, can prevent much pain later. This is something that often doesn’t get attention until it suddenly matters a lot.

You can’t control everything in life, but you can control how prepared you’ll be. By taking these steps, you’ll save money on taxes and spare your future self a major financial headache at a difficult time.

Sam Huszczo, CFA, CFP, is the founder and chief investment officer of SGH Wealth Management, an award-winning wealth management firm based in the Detroit area.