Navigating Taxes as a Widow or Widower: A Practical Guide

Losing a spouse is one of life’s most difficult experiences, and the financial aftermath can feel overwhelming. Among these, navigating taxes is often confusing and easily overlooked.  Yet understanding your tax filing options and making informed decisions can reduce financial stress and save you money. While it’s important to work closely with your professional advisory team, this practical guide offers helpful insights to support you through this transition and help you avoid costly mistakes. 

How to File Your Taxes 

In the Year of Death 

If your spouse passed away during the year, you can still file your taxes using the Married Filing Jointly status for that tax year provided you have not remarried by December 31st.¹ This filing status generally offers more favorable tax rates and higher deductions than filing as a single individual. 

In the Years Following the Year of Death 

Starting the year after your spouse’s death, you will typically need to file as Single, unless you qualify for the Qualifying Widow(er) with Dependent Child status.² This special filing status is available for up to two years if you have a dependent child and meet certain requirements. If you don’t have a dependent child, filing as Single may result in higher taxes. This shift is commonly known as the “widow’s penalty.”³ 

Minimizing the Widow’s Penalty 

The “widow’s penalty” refers to the increase in tax rates and loss of deductions that often occurs when a surviving spouse transitions from Married Filing Jointly to Single filing status. One way to help reduce this impact is by strategic income planning. For example, if you anticipate large taxable events like selling assets, taking retirement account or annuity distributions consider doing so in the year of your spouse’s death to benefit from the more favorable Married Filing Jointly status. 

Take Inventory and Notify Institutions 

Getting organized early can prevent confusion and costly errors down the line. Notify every financial institution where you and your spouse hold accounts to update ownership and beneficiary information. This helps ensure you receive the correct tax documents going forward and that your beneficiary designations reflect your current wishes. 

Below are a few tax-related considerations for handling different types of assets after the loss of a spouse: 

• Bank Accounts: Convert all joint accounts to your name and update the associated Tax ID. This includes checking, savings, CDs, and money market accounts. Consider keeping at least one joint bank account temporarily open to deposit any checks issued in your spouse’s name over the next 6 to 12 months.  

• Life Insurance Policies: Death benefit proceeds are generally tax-free. However, always report the payout to your CPA to ensure proper tax handling, especially if interest is earned. 

• Pensions: If your spouse had a pension, check for any survivor benefits. If payments continue to you, they are generally considered taxable income. 

• Social Security: You may qualify for survivor benefits, allowing you to receive your spouse’s benefit if it’s higher than yours. Keep in mind that you can’t receive both benefits; you will receive the higher of the two.⁴ Also, a portion of your social security income may be taxable.  

• Investment and Brokerage Accounts: 

• • Non-Qualified (NQ) Investment Accounts: These are taxable non-retirement investment accounts such as individual or joint accounts. When a spouse passes, the surviving spouse may receive a partial or full step-up in cost basis as of the date of death. This can significantly reduce the capital gains tax if you sell the investments. 

• • Annuities: If you and your spouse had non-qualified annuities with high gains (which are taxed as ordinary income), consider surrendering in the year of death to take advantage of the more favorable Married Filing Jointly tax rates.  

• • Retirement Accounts: As a surviving spouse, you can typically roll over inherited retirement accounts (like IRAs or 401(k)s) into your own name. This spousal rollover preserves tax-deferred growth and may help you avoid the immediate required minimum distributions (RMDs) that apply to inherited IRA accounts. However, you will still need to take your RMDs at age 73.⁵ 

• Real Estate: If you sell your primary residence within two years of your spouse’s death, you may still qualify for the $500,000 capital gains exclusion. If you sell after two years, you will be subject to the single filer’s capital gain exclusion of $250,000.⁶ The exclusion applies to the gain on the sale, not the sale price, and certain conditions must be met to qualify. 

What Can You Do Now to Prepare? 

Planning ahead can ease future burdens, both financial and emotional, and help you make more informed decisions. 

• Work With your Estate Attorney, CPA, and Financial Advisor: Collaborating with trusted professionals can help you navigate complex decisions, avoid costly mistakes, and stay aligned with your long-term goals. 

• Keep Estate Documents Up to Date: Regularly review your estate plan, especially after major life changes. Consider whether establishing or updating a trust makes sense, particularly if you live in a state with its own estate taxes. Thoughtful planning can result in considerable savings for your heirs.  

• Review Beneficiary Designations: Ensure all accounts such as retirement plans, life insurance policies, annuities, and investment accounts reflect your current wishes and align with your overall estate plan.  

Final Thoughts 

Navigating taxes after the loss of a spouse is a deeply personal journey that combines financial, legal, and emotional considerations. While the process may feel overwhelming, understanding your options and taking proactive steps can make it more manageable. You don’t have to face it alone; lean on trusted professionals and take things one step at a time.  

Sources: 

1. IRS.gov: Filing status | Internal Revenue Service
2. IRS.gov: 2024 Publication 501
3. Block, Sandra. "How to Avoid the Widows Penalty After the Loss of a Spouse." Kiplinger, 11 Aug. 2024, www.kiplinger.com/retirement/how-to-avoid-the-widows-penalty-after-the-loss-of-a-spouse. Accessed 16 May 2025.
4. SSA.gov: “What You Could Get from Survivor Benefits.” Social Security, 2024, www.ssa.gov/survivor/amount 
5. IRS.gov: “Retirement Plan and IRA Required Minimum Distributions FAQs | Internal Revenue Service.” www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs.
6. IRS.gov: “Publication 523 (2019), Selling Your Home | Internal Revenue Service.”  28 Dec. 2022, www.irs.gov/publications/p523. 

Disclosures: 

Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.  

No current or future client should assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. As with any investment strategy, there is the possibility of profitability as well as loss. 

Apella Wealth does not provide tax or legal advice and nothing either stated or implied here should be inferred as providing such advice.