I thought getting married would prompt a rash of wedding related articles on the blog, but to be honest, I was so wiped out by all the planning, the last thing I wanted to do was write about it. Now that I’m a few months out though, I’ve gotten over the wedding hangover and you can expect a few wedding related articles sprinkled here and there over the next few months.
We often hear a lot about the marriage penalty in personal finance and for some high income earners it might even be a good enough reason not to get married. You see, once you get into the 28% tax bracket, two individuals that get married will actually pay a higher effective tax rate than if they were single. Some people think this is because the government is sexist and other people like me have no idea why it’s like this.
But to be honest, if you’re in the 28% tax bracket, paying a little extra taxes probably isn’t a big deal to you. Personally, I’m nowhere near that tax bracket and getting married actually ended up saving us a lot of money. Here’s how:
Same Income, Lower Tax Bracket
The biggest tax break from getting married will come due to the fact that since my wife isn’t working anymore, my entire income will now land in a lower tax bracket. Last year, my marginal tax bracket as a single individual was 25% but now that we’re married we’ll be in the 15% tax bracket.
Obviously it’s nice to pay less in taxes but being in the 15% tax bracket opens up a lot of unique opportunities if I wanted to rollover my old 401k to a Roth IRA for example. I could roll over just enough to get to the 25% tax bracket ($73,800) and lock in a 15% tax rate. Since our income is slated to go up in the future, this might be a good strategy. More on this in a future post.
Student Healthcare Is A Bitch
I’ve always let my wife handle her side of the finances when it came to things like taking out student loans and paying for school but prior to getting married I took an in-depth look at her yearly bill and realized that we were paying $3,537 per year for her healthcare! I’ve never really bought healthcare on my own since I’ve always been covered under my mom’s plan or by my employer, but $300 a month seems pretty steep for a young, in shape 28 year old female.
As you guys know, I’m a HUGE proponent of HSA’s and high deductible plans because I feel that insurance should be reserved only for catastrophes. It doesn’t make sense to insure against services you know you’re going to need since there’s no ‘free lunch’ when it comes to insurance.
The premiums that you pay have to cover all the benefits that an insurance company pays out, all of the expenses of running the company (including salaries, rent on buildings, etc) and any profit there might/will be. So by the laws of math, the average client will get less than what they put into it: that’s how insurance works. So it behooves you as a consumer to avoid any type of insurance unless you really need it.
Adding My Wife As A Dependent
In this situation, we couldn’t really avoid insurance altogether but we could add her as a dependent to my employer’s health plan and save money that way. I’ve always been tempted to leave my day job and go out on my own but I have to admit there are some really nice perks of working for a great company. My current healthcare plan costs me $0/month and it’s actually free to add my wife.
Related Article: Annual Enrollment Time: HSA vs PPO
I was already saving $546 in premiums by opting for the HSA/HDHP combo instead of the PPO plan (in addition to a $600 employer contribution to my HSA) but once I added her, we got an additional $600 contribution from my employer. So altogether, my work is now paying me $1,746 every single year to go with the HSA/HDHP combo (the savings are actually even higher compared to a PPO since my PPO premiums would have gone up once I got married).
Adding It All Up
At the end of the day, getting married was a $4,200 swing. We saved $3,600 since we no longer have to pay student healthcare and we actually got an extra $600 HSA contribution from my employer after adding my wife to the plan. Obviously the HSA is a no brainer in this scenario but it’s pretty amazing that we can save $4,200 just by singing our names on a piece of paper. And remember that $3,600 is actually with after tax dollars so the savings are even greater!
Readers, what do you think about getting married just to save on healthcare? Should we have gotten married one year earlier so we could have saved another $4,200? Have there been any big financial gains in your life after getting married or have you experienced the dreaded marriage penalty?
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-Harry @ PF Pro