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LGBT Retirement Planning

Until very recently, many of the typical spousal retirement planning strategies used by married couples were not available broadly to LGBT couples. Some of these strategies were made overly complicated by lack of legal recognition for same-sex marriages, or were not available at all. At the same time others may have just been ignored completely. Committed couples without legal recognition were less likely to truly run their finances together, which can make it much easier to ignore retirement planning.

With the increasing recognition by states of same-sex marriages, LGBT couples are now looking at retirement with new eyes, and in many cases with new opportunities. Married couples can pass money back and forth without raising any red flags or causing tax problems. This makes a few tax saving strategies a bit easier to accomplish. This makes financial planning easier as the retitling of assets and the funding of individual retirement accounts on each other’s behalf allows for a more mutual style of retirement strategy. We see in some cases that this has made LGBT couples more open and willing to address long-term planning issues and to look at strategies that may apply to them.

Often one partner will make significantly more than another or may have disposable assets the other does not have. Now that (in some states) LGBT spouses can freely pass money between each other, one spouse can help indirectly fund the other retirement account. This can dramatically increase the total amount saved between the couple, and reduce their over check owed to Uncle Sam (the IRS).

This may just mean one spouse giving the other money to fully fund an IRA or other retirement account. With a 401(k), there is a potential $17,500 tax deduction ($23,000 if over 50).

For couples where one spouse is highly compensated and the other is self-employed, the potential benefits could be even higher. The self-employed spouse sets up a Solo 401(k) Profit Sharing plan for their business and have been able to contribute nearly 100% of their income, $52,000 (in 2014) in this case. ($57,500 for those 50 and older.) This large of a contribution may not have been possible without the financial help of the highly compensated spouse paying some of the families other bills. They happen to be in the 39.6% tax bracket, so this 401(k) offers a potential income tax savings of around $20,592. This does not include potential reductions in Social Security, Medicare, and Affordable Care Act taxes.) Most importantly this will help them stay on track for their goal of early retirement. The high earning spouse will continue to maximize his contributions to works various retirement options of $17,500 (in 2014) into his company’s 401(k) providing another $6930 in tax reduction.

Some of the best strategies for couples to reduce their potential federal tax exposure are the simplest. For example, a wage-earning spouse who meets certain income requirements can make a tax-deductible IRA contribution on behalf of her non-working spouse. Because simple strategies like this are new to many in the LGBT community, they are providing new opportunities for same-sex couples to think differently and more proactively about retirement.

Adopting a Spouse's IRA

If one spouse passed away, his or her IRA can be adopted by the surviving spouse as a non-taxable event. Another option would be to roll it over into an existing IRA. Prior to this, an IRA would have to be taken out in a condensed time frame, potentially pushing other income up into dramatically higher tax rates, and leaving less money for the surviving spouse to live on. With legally-recognized marriages, same-sex couples now have additional estate planning benefits that may add increased security to their retirements.

Social Security

Social Security will play a major role in many baby boomers retirement plans. With so many boomers behind on retirement savings, the percentage of their retirement income being provided by social security may be high. A non-working spouse is entitled to at least 50% of the benefit of a working spouse which provides another benefit to LGBT couples from legal recognition. On a similar note, a spouse with a smaller benefit can “step up” to a higher benefit if their spouse passes before them. This area of financial planning is quickly evolving, so make sure to discuss the current laws and statuses at length with an advisor familiar with LGBT planning.

Money can be a top cause of friction between spouses. Work together with the help of a trusted advisor to develop a comprehensive plan to help you both reach you specific financial goals. This plan will also hopefully help you keep more of the money you’ve earned, which may make some of your financial goals closer to be achieved than you thought. As your income combines and climbs, various tax planning strategies and tax deferral from retirement account may become even more valuable.

What If I'm Not married

For those same-sex couples who live in states where marriage is not legally recognized or for those who choose not to take the step toward legal marriage, the issues surrounding asset sharing, taxation and estate transfer remain basically the same. It is critical that you work with a tax professional, attorney and advisor that knows your state’s laws regarding same-sex relationships and that you arrange your plan according.

Couples who do not meet (for various reasons) the legal definition of marriage in their state, should make sure and consider the 5 key estate planning tools necessary to protect your assets and the legal powers of your relationship status:

Powers of Attorney (2): A Financial Power of Attorney allows you designate to access and control your financial assets if you are incapacitated. Medical Power of Attorney is similar but deals with the medical side of things; if you are not able to make decisions about your health then the Medical Power of Attorney that you have designated will make these decisions on your behalf.

Living Will: Through a living will, you tell people what you want done if you need life-sustaining medical treatment, pulling. There is an area in this document that can talk about being a donor and what you would like to have done with your body after passing if it includes a Last Remains Designation.

HIPAA Release: Your HIPAA Release document is permission for the physician to release your medical condition to the person who has the HIPAA. This allows your doctor to work directly with your partner for the benefit of your care in the case of any kind of health situation.

Living Trust: A Trust is a contract that holds title to and controls your assets. This can be a crucial part of planning for LGBT partners. The main focus of this document is to make sure your assets go where you want. It also protects your privacy; it remains confidential and does not become a matter of public record. If your estate would go to court in a probate process without a living trust, a judge would decide where everything would go and looks to family (blood relations) first.


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All information herein has been prepared solely for informational purposes and is not an offer to buy, sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Advisory services provided by TrilogyCapital, Inc, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), a SEC Registered Investment Adviser and broker-dealer. Member FINRA and SIPC. Certain registered representative with NPC are doing business under the name of Trilogy Financial. TrilogyCapital, Inc. and Trilogy Financial are affiliated by common ownership and are separate and unrelated to NPC. Please consult with your representative to confirm, on which company's behalf services are being provided. Registered Representatives of NPC may transact securities business in a particular state only if first registered, excluded or exempted from Broker-Dealer, agent or Investment Adviser Representative requirements. In addition, follow-up conversations or meetings with individuals in a particular state that involve either the effecting or attempting to affect transactions in securities or the rendering of personalized investment advice for compensation will not be made absent compliance with state Broker-Dealer, agent or Investment Adviser Representative registration requirements or an applicable exemption or exclusion. Content is for general purposes only and is not an offer to buy or sell any security. NPC does not provide tax or legal advice. NPC Privacy Policy.