When the U.S. Supreme Court struck down a section of the Defense of Marriage Act (DOMA), it not only changed the way our federal government views marriage, but it also has indirect effects on the way the financial industry will do business going forward.
There are so many things in life that have both direct and indirect effects. For example, when I eat a whole large pizza by myself in one sitting, it is reasonable to believe that a direct effect would be my inability to move off of the couch for at least a couple of hours. A possible indirect effect is that because I couldn’t pry myself off of the couch long enough to take the dogs for a run, they decided to use my laptop as their own personal chew toy.
All kidding aside though, these direct and indirect effects happen almost every time the Supreme Court (or any other authoritative body) rules on a particular issue, it’s just not every day that it affects the financial industry in so many different areas.
On June 26, 2013, the U.S. Supreme Court used the Due Process Clause of the 5thAmendment to strike down Section 3 of the Defense of Marriage Act (DOMA), which excluded same-sex partners from the definition of marriage. However, the ruling does not directly address, and has no direct affect on, bans in states where same-sex marriage is not allowed. So while this decision changes the federal definition of "marriage" and "spouse," each state is still free to create its own definition of these terms.
This ruling affects employee benefits plans, federal programs offered to married couples, and federal taxation of same-sex couples, which is illustrated by looking at just a few areas that relate to retirement planning:
|IRC section 72(s)||
The “spousal continuation rule” available for nonqualified annuities
|IRC section 401(a)(9)||Special rules in determining the RMD before and after the employee’s death when the designated beneficiary is the surviving spouse|
|Eligible Rollover Rules||Special tax-free rollover rules that apply only when the designated beneficiary is the surviving spouse|
|Penalty Tax Provisions||Exceptions to the 10% penalty include certain expenses (i.e., higher education and unreimbursed medical expenses) incurred by the spouse|
|Social Security||Spousal benefits that are provided (e.g., survivor and dependent benefits)|
|Medicare||Certain privileges offered to spouses (e.g., the ability to delay enrollment into Medicare beyond age 65 if working spouse has sufficient medical benefits through their employer)|
Clearly, the list does not stop here, and it will continue to expand when more programs and procedures are reviewed to ensure the new federal definition of marriage has been incorporated across the board. Also, many of these issues have yet to be fully addressed, and more are sure to come up, but Advanced Marketing will keep a close eye on the ever-developing dialogue and provide you with updates as they come.
If you have any questions about this topic, please feel free to call the Retirement Strategies Group at ext, 3939.
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