Many retirees are caught off guard by this 1 costly survivor’s penalty. Are you planning now to reduce the long-term impact?

The survivor’s penalty is one of the “most overlooked and financially damaging tax events,” certified financial planner Gregory Furer, CEO and founder of Beratung Advisors in Pittsburgh, told CNBC. “And it often appears at the worst possible time.” (1)

The survivor’s penalty affects more than just tax rates

In the year your spouse passes away, you can usually still file a joint return. (2) If you have a dependent child who lives with you, then you may be able to continue filing under this status for two years as a ‘qualifying widow(er)’ and possibly as a “head of household” after that, subject to certain conditions. (3)

Otherwise, and in most cases, you must file as a single filer in the year following the death of your spouse. (4)

Changing your status from a joint to single filer will alter your tax bracket, available standard deduction and thresholds for other taxes or tax breaks.

For example, the marginal tax rate for a couple filing jointly moves from 24% to 32% when the couple’s annual taxable income exceeds $211,400, but this same marginal tax increase takes place when the income of a single filer exceeds $105,700. (5)

At the same time, the minimum standard deduction for a couple filing jointly is $31,500, while that for a single filer is $15,750.

The threshold for some additional taxes, such as the net investment income tax, falls when you’re a single filer (6), as does the threshold where some tax breaks, like the deduction for seniors, starts to phase out.

However, with income streams such as Social Security benefits and required minimum distributions from your retirement accounts, your income might not drop by the $100,000 or more needed to maintain your existing marginal tax rate.

“The tax scenario in our country assumes a single person makes half of what a married couple makes, but it’s not that way in real life,” said Ed Slott, founder of IRAhelp.com, in an interview with Kiplinger. (7)

For instance, your RMDs may increase if you inherit a retirement account and you might get a bump in your Social Security check from the survivor benefit. If that happens, you could end up paying taxes on higher income in a higher tax bracket. (8)

Although it will eventually lead to tax-free withdrawals, if you inherit a Roth IRA and choose to do a Roth conversion, the converted amount will count as income, potentially creating a large tax bill in the years you execute the conversion.