San Francisco Chronicle, November 25, 2013
Today I've got answers to questions on the Affordable Care Act and same-sex marriage.
Q: Beth B. asks, "My daughter just turned 24 and is still on my family plan with my HMO. I am retired, and it is costing me a small fortune. She makes somewhere in the low $20,000s.
"My research has come up with some plans under Covered California, with the same HMO, which, with her presumed tax credits, will cost less than what I am paying now to keep her on my plan. I am unmarried and have no other kids. Is there any rule/law/policy – either the government's or the HMO's – that says that I must keep her on my plan, just because I can?"
A: No. A parent does not have to include a young adult child on his or her health plan just because the young adult is eligible to be on it.
However, if a son or daughter is the parent's tax dependent, the parent and child will be treated as a household – and their incomes will be added together – to determine whether they are eligible for a tax subsidy for a plan purchased on Covered California, says Laurel Lucia, a policy analyst with the UC Berkeley Labor Center.
The same would be true if the mother had health insurance at work and the daughter was enrolled in her mother's plan. The mother would not have to keep the daughter on the plan, but the daughter would have to unenroll from the plan before she could begin receiving premium subsidies.
Q: Richard K. asks, "My husband died in 2011, and we were legally married in California at the time (having married when it was legal in 2008).
"Because ours was a same–sex marriage, and not recognized by the federal government at the time, I was forced to transfer his IRA to an inherited IRA instead of doing a spousal rollover, the latter having minimum required withdrawal advantages.
"Is it possible to do a spousal rollover from the inherited IRA now that the relevant part of the Defense of Marriage Act has been struck down?"
A: Although the Internal Revenue Service has not answered this question specifically, IRA expert Ed Slott says he believes the answer is yes because they were legally married and there is no deadline for doing a spousal rollover.
Whether he should is another question.
When you inherit an IRA from a deceased spouse, you can transfer it to an inherited IRA or roll it over into a new or existing IRA in your own name. The latter is called a spousal rollover and is only an option for those who are legally married. There is no deadline for doing this rollover.
Each option has advantages and disadvantages. Assuming you inherit a traditional IRA:
–– If you transfer it to an inherited IRA, you generally must begin taking required minimum distributions every year starting the year after the original IRA owner dies, unless you inherit from a spouse. In that case, you don't have to begin taking withdrawals until the year the deceased spouse would have turned 70.5.
The potential downside is that you might have to take withdrawals, and pay taxes on them, before you turn 70.5.
–– If you do a spousal rollover into your own IRA, you will not have to start taking required minimum distributions until you turn 70.5. This is an advantage if you won't need to tap the IRA because you won't have to pay tax on distributions that you would rather not be taking.
The disadvantage is that if you need to withdraw money before you turn 59.5, you will pay 10 percent penalty (unless you qualify for an exception), in addition to income tax on the amount you take out.
Slott says he often advises surviving spouses to keep the money in an inherited IRA until they turn 59.5, in case they need it, and then roll it into their own IRA to postpone required distributions. Once you have rolled it into your own IRA, however, you cannot roll it back into an inherited IRA.
In August, the IRS issued revenue ruling 2013–17, which essentially said that same–sex couples who were married in a jurisdiction that legally recognizes same–sex marriage are considered married for federal income tax purposes.
In a press release announcing the ruling, the Treasury Department said it "applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit."
Although the ruling itself does not mention spousal rollovers, Slott said, "If it was my client I would say you can do the rollover, and I'm very conservative."