Hello, all my hopeful people!

Rather than get deep and reflective about the Valentine’s season, let’s check out some fascinating facts about the Month of Love:

• The word February comes from the Latin word februa, which means “to cleanse.” It was named in honor of Februalia, a purification festival celebrated by the Romans.

• Because they considered even numbers unlucky, the Romans originally gave each month 29 days…which backfired as it caused the total number days for the year to be even. King Numa solved this circa 700 B.C. when he officially declared February - the month of the dead - to contain only 28 days.

• “February” holds the dishonorable distinction of being one of the most commonly misspelled words in the English language…along with “weird,” “license,” “pronunciation,” and ironically, “misspell.”

You can check out more wild fact about February in a great post I’ve linked in the Articles Worth Reading section.

Ever hopeful,

Carolyn

Financial Jargon Made Easy

The Widow’s Penalty

Sometimes called the widow’s tax, the widow’s penalty refers to a common issue most widows face where they lose their “Married Filing Jointly” status one year after the death of their person (this extends to two years if they have dependents).

This results in widows moving into higher tax brackets, meaning more taxes will be owed even if income stays the same or declines.

This Month’s Financial Tip

Tax Savings Through a Roth Conversion

Depending on your specific situation and financial goals, a Roth conversion may be a good early strategy for mitigating your taxes as a widow.

Just like it sounds, a Roth conversion allows you to take a traditional IRA account and convert it to a Roth IRA, which provides tax-free distributions when certain age and ownership longevity conditions are met.

Executing the conversion during the window where you are still considered “Married Filing Jointly” means you’ll get the benefit of being in a lower tax bracket at the time of the transaction.

As always, talk to your financial professional to see if this strategy would be beneficial for your short- and long-term financial health.

A Lesson from Charlotte

Charlotte was 60 when her husband passed away, leaving her a beautiful home, some life insurance, and $1M in a traditional IRA.

At the time of her husband’s death, their household income was $90K, and their Married Filing Jointly tax bracket was 12%.

If she chose to do a Roth conversion in the first year, she’d pay $120K in one-time taxes, leaving $880K to grow and be distributed tax-free from her Roth once she made it through the mandatory 5-year holding period.

If she chose to take distributions from the traditional IRA instead (assuming she withdrew enough to maintain her present income level), she’d be bumped up to the 22% tax bracket after the first year, meaning roughly $20K of income taxes annually.

Assuming Charlotte lives until 85, she’ll end up paying around $500K in taxes going the traditional IRA route vs. just $120K with a Roth conversion.

In this case, the death benefit from the life insurance provided enough for her to live on during the 5-year Roth holding period, so a Roth conversion was a viable strategy to help her reduce the impact of the widow’s tax.

(It’s important to note that the above scenario ignores both the negative impact of inflation and the positive impact of the growth of the additional Roth funds invested over time).

Takeaway

If you want to discuss your tax situation and look at avenues to reduce the impact of the Widow’s Penalty, schedule a complimentary call with me below.

You can also call me at 941-841-6564 or email me at [email protected] if you prefer.

Articles Worth Reading

If you’re new to the world of widowed finance, you can get a great foundation with my three-part series below.

Part 1 - Setting Goals & Budgets

Part 2 - Taxes & Investments

Part 3 - Retirement & Estate Planning

Here’s a very comprehensive look at the Widow’s Penalty and several strategies to soften its impact:

How to Avoid the Widow’s Penalty

Even more crazy info about February:

14 Fascinating Facts about February

If something you read today made you think of another friend or family member, share this newsletter with them.

This Month’s Recipe

Ridiculous Raspberry Muffins

One of my favorite treats to whip up for the Month of Love. It was originally featured in the famous 2nd Silver Palate Cookbook.

Batter ingredients:

¼ cup softened butter
1 large egg
1 ½ cups all-purpose flour (can be gluten-free if you wish)
½ tsp. salt
1 ½ cups fresh raspberries
¾ cup white sugar
1 tsp. vanilla extract
2 tsp. baking powder
¼ buttermilk

Topping ingredients:

2 tbsp. cold butter
2 tbsp. white sugar
2 tbsp. light brown sugar
¼ flour

Directions

1 • Preheat oven to 365 degrees
2 • Place cupcake liners in muffin tin and set aside
3 • Cream butter and sugar together in large mixing bowl
4 • In a separate bowl, whisk together flour, baking powder, and salt
5 • Alternately add flour mixture and buttermilk to the butter/sugar cream from Step 2 and gently beat mixture until fully incorporated.
6 • Toss raspberries with 1 tbsp. of flour until evenly coated
7 • Fold half of the berries into the batter
8 • Add ¼ cup batter to each muffin cup and load up the tops of the muffins with the remaining berries
9 • Combine all topping ingredients until mixture is crumbly
10 • Reduce oven to 350 degrees and bake muffins for 18-20 minutes
11 • Brew some lovely coffee and indulge!