Not Getting the “Benefit” of the Doubt

As the 70 million+ baby boomers approach retirement (10,000 actually turn age 65 every day), they are thinking about two very important retirement benefits – Medicare and Social Security.  However, those in domestic partnerships (same-sex as well as opposite-sex) may not be eligible for the same benefits as legally married folks.

Federal law doesn’t yet recognize domestic partnerships. Ellen Shultz from the Wall Street Journal recently wrote a great column highlighting the potential benefit traps which are paraphrased below. Until courts overturn the laws or Congress changes them, domestic partners need to understand the current rules to avoid coverage gaps and costly mistakes.

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Paying Taxes on Healthcare Benefits

Most large employers provide domestic partner benefits, but nontraditional couples don’t get the same tax breaks traditional married ones do. For example, if an employee’s partner is covered by the employer’s health plan the employee must pay income and payroll taxes on the imputed amount of her partner’s coverage.

Medicare Enrollment

Nontraditional couples aren’t eligible for the spousal exemption for the Medicare enrollment deadline. Under federal rules, individuals are required to enroll in Medicare when they turn 65 or pay a premium penalty of 10% for each 12-month period they delay. Exempted from this deadline are employees covered by an employer’s plan and their spouses. These couples can postpone enrolling until their workplace coverage ends without penalty and can then enroll without waiting until the annual enrollment period. Domestic partners aren’t eligible for the spousal exemption and will end up with coverage gaps and higher premiums for life if they don’t enroll by the deadline, which is 3 months after turning 65.  What’s more, people who enroll late must wait until the general enrollment period that runs from Jan 1-March 31, and their coverage won’t be effective until July 1. Worst-case scenario, a person might wait as long as 15 months for coverage to begin.

Social Security Eligibility

Domestic partners and legally married gay couples aren’t eligible for Social Security survivor benefits, which provide widows and widowers with 100% of the deceased spouse’s benefits at full retirement age or reduced benefits as early as age 60.  Just as important, domestic partners aren’t eligible for spousal benefits, which are 50% of a husband’s or wife’s Social Security benefit at full retirement age or a reduced benefit at age 62, nor can they use common strategies available to married couples to maximize Social Security benefits.  Domestic partners can, however, receive Social Security benefits based on a prior marriage to an opposite-sex partner, provided the marriage lasted at least 10 years.

At Woodward Financial Advisors, our financial planners are well versed in retirement benefits.  Please let us know if you have any questions about these retirement planning topics, either for same-sex or opposite-sex domestic partnerships.  We’re here to advise you or your loved ones on these important issues.

About Jim Miller

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