Retirement Plans
Whether you’re 5 or 40 years away from retirement, if you have a same-sex partner and you’re saving for your family’s future, federal law fails to recognize your partner as it does a spouse.
When a husband or wife dies, the surviving spouse can move money from the deceased’s retirement plan into his or her own plan without taxation or limitations. But because same-sex couples are treated as strangers under the tax code, a same-sex surviving partner incurs significant penalties and restrictions when transferring a deceased’s retirement plan.
Two retirement options in which many American businesses and employees invest are 401(k) plans and individual retirement accounts, or IRAs. In both cases, a federal law called the Employment Retirement Income Security Act of 1974 (ERISA) allows a surviving spouse to roll over, or transfer, the deceased’s IRA or 401(k) plan into his or her own plan. The plan, then, continues to grow without being taxed.
Surviving same-sex partners, however, are unable to roll over their partners’ plans into their own and are heavily taxed on the money they receive. This is because same-sex partners are typically restricted to receiving the benefits in lump-sum payments, which has considerable disadvantages.
First, the surviving partner has to receive funds from the entire retirement plan all at once or in a short period. Such a payout is heavily taxed and may push the recipient into a higher tax bracket. Further, the surviving partner is prevented from allowing the money to grow tax-free. Depending on where the money was invested, the share value may have actually declined from the original purchase price but the survivor is forced to cash out immediately, rather than wait for market conditions to improve.
What HRC is Doing
The Human Rights Campaign is working to equalize federal tax treatment of retirement plans for all eligible beneficiaries, including same-sex partners. Specifically, HRC is urging Congress to ensure that any pension reform legislation examines opportunities for equitable treatment for domestic partners; require that equitable treatment of domestic partners be a factor in all ERISA guidance and regulations issued by the Treasury Department; and permit non-spousal beneficiaries, including domestic partners, to roll over a deceased same-sex partner’s 401(k) and/or IRA plans into their own plans.