The Feds Think Married Chicks Are Rich

"Don't worry honey, I'll fund your Spousal Roth IRA!"

I recently began a reorganization of my finances prompted by one evening of watching about a dozen podcasts of The Suze Orman Show back to back. Prompted by everyone’s favorite  Midwestern Folksy Financial Power Lesbian, I decided to get my money stuff organized for 2010. I am drafting will and trust documents this month.  I came up with a debt repayment and retirement savings schedule (if I stick to it, I will have about $875,000 in retirement investments by age 65 – not too bad). The hubby and I also discussed buying a home and have begun to save for the down payment.

As I was using one of those Roth IRA calculators online I noticed a link to the IRS website. On that page, I found another link to an IRS publication: Publication 590. I clicked on this link and downloaded this document in PDF. It is basically a “what’s new with retirement account tax stuff” thing that’s about 110 pages long. In it, I found some startling information about Roth IRAs. Apparently, if your tax filing status is Married Filing Separately and you lived with your spouse during the tax year, you cannot contribute to a Roth IRA if your adjusted gross income exceeds $10,000. Why is this a problem for me? Well, as some of you may know, Congress recently made some great changes to the Federal Direct student loan program. The new law established some more realistic repayment options for borrowers in this shit economy we are all living through. They now have an income-based repayment plan. But here is the catch: if you are married, you have to file your taxes separately in order to qualify for the program. I knew this before I got married. It was one of the many things I researched when deciding how marriage would affect my money. But I did not know that if hubby and I filed separately, I could not contribute to my Roth IRA. Fuck.

For those of you who don’t know, if you make under a certain amount of money (under $105,000 if you are single, or head of household, and under $166,000 if you are married filing jointly or a qualifying widow(er)), you can contribute up to $5,000 per year in a Roth IRA. Unlike a Traditional IRA where you can deduct the contributions you make off of your taxes, Roth IRA contributions are made with after tax dollars. Why is this good? It’s good because in my opinion (and according to Suze Orman) it is better to pay taxes on money now while you are young and able to work than to pay them when you are old and no longer working. Because these contributions are made with after tax dollars, any withdraws made when I retire are tax-free. I love this.

But now because I am married it seems that I have to choose between a great retirement investment that I want to keep and a student loan payment that I can afford. If we were living together but not married, this would not be the case. Let’s look at the situation more closely: I could contribute to a Roth IRA if I filed separately and made less than $10,000 per year. I ask you: what kind of married woman (other than one who is poor and probably cannot afford to save for retirement) earns less than $10,000 per year? Most likely it is a stay at home mom or someone with a part-time job. She can contribute to a Roth on her own (which she could only do if she had no other expenses except for saving for retirement), or she can qualify for a spousal Roth IRA – the money that her husband earns can be contributed on her behalf to an account in her name. The only type of spouse that fits this profile is a dependent one – usually a wife. In a really fucked up way, it seems that the federal government is rewarding financial dependence on a spouse through the tax code and punishing those spouses who earn their own money and want to keep it separate. So who are they really punishing? Married women who work. Women who do not fit the heteronormative, pronatalist idea of what wives should be doing with their time.

I am currently on a graduated repayment plan for my federal loans, which lowers the payment, but speaking as a person who makes about $17,500 less than what I thought I was going to make upon graduating from law school, I am struggling with this payment. I am especially struggling now because I also have to pay off my commercial student loan, plus a car, and credit cards that I ran up balances on during the 18 months I was unemployed after law school. If I wanted to do the income-based repayment plan and filed taxes jointly, the payment would be $1,065 per month – because they would include my husband’s income. My question is: Why??? These are not his loans. They are not his responsibility. But because the government considers married folk to be an economic unit, it doesn’t matter. They assume our money is mixed. They assume that all expenses are jointly paid for and in an increasing number of marriages, this is simply not the case. So if I file my taxes jointly, the Federal Direct Loan program thinks that I am rich and can afford a thousand dollar loan payment. Note: If I were still single with the same income, my payment under the income based plan would be less than what I now pay. So I am only eligible for mercy on my student loans if I file separately, because otherwise they think I am rich, and I am only eligible for a favorable retirement account if I file jointly because if I have enough money to file separately…they think I’m rich. That is so fucked up.

So what’s my plan? I have decided that it is in my best interests to suffer now, rather than later. Why? Because I know that I will probably never be one of those really high earners – I’ve accepted that. So I have to be a slow and steady saver. I’m lucky – I have 33 years to save. And I want a tax-free retirement account to draw from when I am older. Dependence upon a spouse for your retirement is not a good financial plan. You have to make your own plans. In this regard, as in some others, I am still very “onely.” Who knows what will happen. I could end up divorced – half the people who get married do. He could die or become disabled. These are all awful things, but I think it is wise to remain in a situation where if I needed to be on my own again, I could be. And actuarially and statistically speaking, it is likely that I will be single again someday. That means I need my own retirement accounts – funded by money that I earn, my own insurance, and my own savings.

This is the challenge of the New Married Woman. The one who doesn’t follow the Wife Script laid down by the Marriage Cult. We have to figure out how to maintain  financial independence, while living interdependently in a practical sense, and resisting the financial dependence that our government and our culture is trying to force upon us. Yes, it is true that married women receive privileges from the government and from society at large – but only a certain kind of married woman.


5 responses to “The Feds Think Married Chicks Are Rich

  1. Hi Therese,

    I didn’t study your post carefully, but anyway, a few things come to mind FWIW —

    First, the basic tax rates on married filing separately (MFS) really really suck (worse than for singles even) and certainly worse than married filing jointly) — you almost never want to file MFS (from what I read). I hear you on the student loan thing… all’s I’m thinking is crunch it out both ways with Turbo Tax or whatever to be sure.

    On Roth IRA’s vs Traditional (deductible IRA) – most experts say it mostly depends on whether you expect your tax rate will be higher in retirement (or whenever you expect to withdraw from it) than they are now…. and some other factors… best to play with those calculators. I’ll admit to a bias in favor of the Roth, however, mainly because I do expect my tax rates to be higher when I begin needing to withdraw the money (not to mention you are forced to withdraw money after age 70 1/2 from a Traditional IRA but not a Roth IRA). I’m guessing you’ll also be in the same boat (higher tax rates decades from now than now) as you sound high-income and savvy about saving.

    Well, the main thing I’m thinking on this Roth business is why not contibute to a Traditional IRA now, and then next year or a few years from now, convert it to a Roth?

  2. I already have a Roth IRA. I had it before I got married. I have weighed all the arguments for and against and I will definitely be in a higher tax bracket when I am older – there is really no way to go but up! While I am savvy, I am not so high income…yet.

    Thanks for the advice!

  3. I have a mix of Traditional and Roth IRA’s. When in the withdrawal stage in retirement (in the years after I’ve exhausted my regular taxable assets assuming I’m still alive so that my only taxable income is Social Security), I expect to first withdraw from my Traditional IRA while in the lower tax brackets, and then when that withdrawal pushes me up into the 25% tax bracket, will withdraw from Roth tax-free.

    Good luck!

  4. OK, can I just say I am *wowed* by the fact that you wrote 1,000 or so words about TAXES and I totally got it?! Amazing, Therese. Thank you for sharing, and I find the sexism underlying our government’s policies on marriage infuriating and unsurprising.

    I really, really appreciate reading about what it’s like “on the other side” (ie, married) from someone who has a pro-Onely perspective!

    — Lisa
    (and PS — I *think* I am going to be back in the blogosphere more regularly from here on out, now that I am recovering from last semester… I have missed all this good writing!)

  5. Late to the party but: I think you could contribute to a traditional IRA, then immediately convert to a Roth– the effect is the same. However, roth IRAs aren’t automatically better; assuming your tax rates are the same now as in retirement, there’s no reason to prefer one over the other.

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