Life
Events
Guide

You are married for the whole year

If you are married on December 31, the IRS considers you married for the entire tax year. Mid-year weddings have full-year tax implications. The choice of filing status is then yours: Married Filing Jointly (MFJ) or Married Filing Separately (MFS).

MFJ vs. MFS — the working rule

For most couples, MFJ produces the lower combined liability. MFS becomes worth modeling when one spouse has high medical expenses (the 7.5% AGI floor is on individual AGI), high miscellaneous deductions, income-driven student loan repayment, or significant income disparities combined with state-specific quirks.

The marriage penalty & bonus

Two high earners with similar incomes often pay slightly more married than they would as two singles (the “penalty”). One high earner and one low earner usually pay less married (the “bonus”). The effect is modest at most income levels but can be material at the top of the bracket structure.

What to do with the old 401(k)

Four options exist; three are usually worth considering and one usually is not.

1. Leave it in the old plan

Available if the balance exceeds the plan's threshold (often $5,000–$7,000). Simple, but you now manage two plans, two beneficiary forms, two statements, two sets of investment options. Acceptable; usually not optimal.

2. Roll into the new employer's plan

Consolidates accounts, preserves the federal “creditor-protected ERISA plan” status, keeps the door open to a backdoor Roth IRA (since no pre-tax IRA balances exist). Available only if the new plan accepts rollovers.

3. Roll into an IRA

Most investment flexibility. Loses ERISA-grade creditor protection (state-level protection varies) and complicates future backdoor Roth IRAs because of the pro-rata rule. Direct trustee-to-trustee transfer; never receive a check.

4. Cash out

Almost never the right call. Triggers ordinary income tax + 10% early-withdrawal penalty if under 59½, with 20% withheld upfront. A $50,000 balance can become $32,000 in hand.

Severance: negotiate what you can

Severance is often more negotiable than departing employees believe. Pay attention to:

• Amount & timing — lump sum vs. salary continuation. Lump sum may push you into a higher bracket; salary continuation often preserves benefits longer.
• Benefits continuation — employer-paid COBRA for a defined period is highly valuable.
• Equity treatment — accelerated vesting, post-termination exercise extensions, and treatment of unvested RSUs.
• References & reputation — agreed-upon language and contacts.
• Release language — what claims are you giving up, and is the consideration fair?

Withholding and the tax year

A lump-sum severance is taxed as supplemental wages — federal withholding defaults to 22% (37% above $1M). For high earners, that's often below the marginal rate, leaving an April surprise. Adjust by paying an estimated tax or asking for a higher withholding on the payment.

Conversely, if the year of separation will be a lower-income year, the lower marginal rate may justify accelerating income into it — for instance, exercising NSOs or doing a Roth conversion before the next employer's compensation kicks in.

Filing status follows December 31

Marital status on the last day of the year governs the entire year. A divorce finalized on December 30 means filing single (or head of household, if qualifying) for the full year. A divorce finalized on January 2 keeps married status for the prior tax year.

Property division: usually not a taxable event

Section 1041 transfers between spouses incident to divorce are generally tax-free. Carryover basis applies — the receiving spouse takes the giving spouse's basis, not a stepped-up value. Two assets of equal market value may have very different after-tax values:

Alimony: post-2018 rule

For divorces finalized on or after January 1, 2019, alimony is no longer deductible by the payer or includible in income by the recipient. Pre-2019 decrees retain the old treatment unless modified to expressly adopt the new rule.

The decedent's final 1040

A final personal income tax return is filed for the period from January 1 through the date of death. It is due on the standard April 15 deadline of the year after death. Income received after death belongs on the estate's return (Form 1041), not the decedent's 1040.

The estate's 1041

If the estate generates more than $600 of income during administration, Form 1041 is required. The estate's fiscal year can be elected to end up to 12 months from the date of death, which can be used to time income recognition advantageously.

Estate tax: Form 706

A federal estate tax return is required if the gross estate plus prior taxable gifts exceeds the lifetime exemption (~$13.6M individual in 2024, doubled MFJ if portability is elected). Even when no tax is owed, filing 706 may be strategic to elect portability of the deceased spouse's unused exemption (“DSUE”) — relevant for surviving spouses whose own assets may eventually exceed their own exemption.

State estate / inheritance tax

Roughly a dozen states levy estate or inheritance tax with significantly lower thresholds — sometimes under $1M. State filing requirements are independent of federal.

Can you claim a parent as a dependent?

A parent qualifies as a “qualifying relative” dependent if:

• You provide more than half of their financial support
• Their gross income (excluding non-taxable Social Security) is under the annual limit (~$5,050 for 2024, indexed)
• They are not the qualifying child of another taxpayer
• They are a U.S. citizen, national, or resident alien (parents do not need to live with you)

A parent claimed as a dependent generates the $500 Credit for Other Dependents and may enable Head of Household filing status if you're unmarried and they qualify as a dependent (they don't need to live with you for HOH if they're your parent).

Medical expenses you pay

Medical expenses you pay for a parent are deductible by you (if you itemize) when the parent meets the relationship and support tests even if their income is too high to claim them as a dependent. This is one of the few areas where the dependency rules differ from the medical-deduction rules.

Multiple-Support Agreement

When several adult children share support of one parent and no single child provides more than half, a Multiple-Support Agreement (Form 2120) lets one of them claim the dependency in a given year — as long as each contributor provides more than 10% and they collectively provide more than half.

Social Security: when to claim

Benefits can begin as early as 62, full retirement age (FRA) is 66–67 depending on birth year, and benefits maximize at age 70. Each year claimed before FRA reduces the lifetime monthly benefit by roughly 6–7%; each year delayed past FRA adds 8%.

The break-even age for delaying from 62 to 70 is typically late-70s to early-80s. For a person in good health expecting longevity, delaying is usually the right answer. For someone with health concerns or no spousal benefit at stake, earlier claiming may be preferred.

Spousal & survivor strategy

In a married couple, the higher-earning spouse's claiming age determines both their own benefit and the eventual survivor benefit. Delaying the higher earner to 70 buys the longest-living spouse the largest possible income floor for the remainder of life. This often matters more than the individual break-even math.

Medicare: the 3-month windows

Initial enrollment is a 7-month window: 3 months before, the month of, and 3 months after the 65th birthday. Late enrollment for Part B triggers a lifetime premium surcharge of 10% per 12 months of delay. The only safe delay is if you have qualifying employer coverage; otherwise enroll on time.

The pre-Medicare years

Retirees between 55 and 65 face the most expensive private-insurance period of their lives. Options:

• ACA Marketplace with premium tax credits, which now depend on managing AGI
• COBRA from former employer (typically 18 months)
• Spouse's employer plan if available
• Retiree health through former employer if offered
• Part-time work structured to qualify for employer coverage

AGI management in these years matters more than usual: it directly affects ACA subsidies. Roth conversions and capital-gain harvesting must be modeled with the subsidy phase-out in mind.

Medicare from 65

Part A is premium-free for most. Part B is the major monthly cost. Part D (drug) and supplemental Medigap or Medicare Advantage each have their own logic. The choice between Medigap and Medicare Advantage is the most consequential post-65 healthcare decision and is harder to reverse once made; the initial enrollment window has the most generous underwriting.

Long-term care

The 70-30 rule of thumb: roughly 70% of people over 65 will need some form of long-term care; the average length is around three years. Costs vary regionally, but national medians sit near $60K (in-home aide) to $120K (nursing facility) annually.

The five-document floor

Every adult should have:

1. A will — disposition of probate assets; guardianship for minors
2. A durable financial POA — agent for financial decisions if incapacitated
3. A healthcare proxy / directive — decision-maker for medical care
4. A living will — wishes on end-of-life treatment
5. An up-to-date beneficiary roster — every retirement account, every life insurance policy, every TOD/POD

When a revocable trust earns its keep

A revocable living trust adds value when one or more apply:

• Real property in multiple states (avoids ancillary probate)
• State with slow, public, or expensive probate (CA, FL, NY)
• Desire for privacy — trusts are not part of public probate records
• Desire for continuity if you become incapacitated
• Children with special needs, second marriages, or other complexity

For a single-state, modest, simple estate, a will alone is often sufficient.

Beneficiary designations: the silent governor

Retirement accounts, life insurance, annuities, and TOD/POD designations pass by contract. They override your will. The single most common estate-plan failure is an out-of-date beneficiary designation — an ex-spouse, a predeceased parent, an estate-as-beneficiary that drags assets into probate. Review every five years and after every major life event.

What to give

For donors who itemize and hold appreciated assets, the deduction is the same and the income-tax cost is lower when giving appreciated securities (held more than one year) rather than cash. The charity sells without paying capital gains tax; the donor deducts full fair market value.

When to give

Two patterns dominate strategic giving:

• Bunching — concentrate multiple years of giving into one tax year to exceed the standard deduction; take the standard in the off years. A donor-advised fund makes this work in practice.
• High-income year giving — accelerate planned giving into a high-AGI year (large bonus, business sale, equity exercise) to maximize the deduction's value.

Three vehicles, in order of complexity

1. Direct cash or appreciated assets — deduct in the year given; simple
2. Donor-Advised Fund (DAF) — deduct on contribution; grant to charities over time; invest in the interim
3. Private foundation — full control; significantly more administration and lower deduction limits

Scope

This guide covers U.S. federal tax and personal-financial planning considerations for major life events as of the edition date. State, local, and international considerations are referenced where common but are not exhaustively treated. Specific dollar thresholds, brackets, and exemption amounts referenced are inflation-indexed and may shift in future years.

Sources

References reflect the Internal Revenue Code, IRS Publications 17, 501, 502, 503, 505, 523, 526, 550, 554, 559, 560, 575, 590-A, 590-B, 936, and 970; the SECURE Act 2.0; the Tax Cuts and Jobs Act of 2017 as made permanent and amended by the July 2025 tax law; and standard estate and financial planning practice.

Disclaimer

This guide is provided for general informational purposes only and does not constitute legal, tax, accounting, or investment advice. Individual circumstances vary; rules change; thresholds shift annually. Apply this guide alongside engagement with your CPA, attorney, and financial advisor for any matter involving material financial or legal consequence. No content in this guide creates an engagement or client relationship with Ring Tax.