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?
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
-Harry @ PF Pro
Tara @ Streets Ahead Living says
My work is unionized (I’m at a private school) so even though I’m a staff member, I still get the healthcare benefits. The rate is the same whether I am paying for myself or a family of 12, $125/paycheck, so it’s a bad deal as a single gal, but not bad once I got married and my husband was added to the insurance at no cost. While I wish I could have gotten a cheaper plan, it’s the only one my work offered. It sucked paying that much for a single, but for two people, it’s not bad. At least for that price, I have low deductibles and I have had to take advantage of them ($125 for ER visit I made recently, $20 for a few specialist doctor’s visits)
I don’t know why NYC doesn’t have many jobs offering HSA health insurance plans but I nor my friends have not come across them in the various jobs I’ve worked. I’ve had FSA’s, but no HSAs.
Harry Campbell says
Solid healthcare is always nice but I could only imagine the thousands if not tens of thousands of dollars your employer is spending on health care. Personally, I would much rather prefer high deductible coverage and a higher salary 🙂 Maybe you could/should start an HSA push – honestly it makes the most sense for both employers and employees. A lot of the bigger companies are actually switching these days or at least offering it.
I would love to hear some feedback from the married folks on this one… As I am not yet married so I don’t have experience going down that road.
I think a big factor in your decision comes directly from your employer Health plan option.
Given my situation for example. My premiums for my HDHP are $0 per year and my new employer does not throw any incentive in the pot. My former used to give me $400 per year for this option.
To add a spouse onto my plan in the same bracket with the HDHP would cost me $1050 per year in additional premium. This would also increase my HSA contributing capabilities as you know….
I am not sure what my girlfriend currently pays in healthcare premiums with her employer so that would need to be evaluated in terms of where the saving benefit would come in.
Harry Campbell says
Yikes, that’s a huge increase for an HDHP! If you got married, I bet it would be cheaper for you to join your wife’s program or stay separate. Some employers will even give you a credit if you don’t bring your spouse onto the plan (similar to the employer contribution you get for opting for the cheaper hsa/hdhp plan)
Yes my thought exactly. My more recent former employer was similar to yours in that there was a premium increase but was more than offset with a kickback contribution to the HSA from the employer.
Yeah we would certainly explore the option of putting my on her insurance in the future if that came about.
Awesome deal for you two through your employer. Sometimes the corporate world does have some good benefits to it…
Harry Campbell says
Yea it’s crazy when you really sit down and think how much health care costs and how much your employer spends on it/you. I’m assuming this plan is at least $500/month for two people plus my employer gives us $1,200 now so that’s a total of $7,200! That’s $600/mo in addition to the salary they pay me 🙂
Mrs. Frugalwoods says
Nice! We have the same deal through Mr. FW’s employer–they pay for his healthcare AND mine. So, we’re spending $0 per month. It’s a pretty amazing benefit! I was so happy to dump my employer’s healthcare plan and hop onto his for free. Definitely a pro of marriage!
Harry Campbell says
That’s awesome! You’re almost leaving money on the table at that point if you don’t get married haha
The last time I calculated, we would pay an extra $5k/year in taxes to be married legally. We both have awesome health insurance with employers who don’t subsidize spouses as much as employees and kids, so it’s silly to combine. I definitely agree with Sam that the marriage penalty is sexist as if I wasn’t making very much money, it would save us money to get married. You were dropped down to the 15% tax bracket, but we would be bumped up to the 33% tax bracket.
Harry Campbell says
Yikes! All the more reason to start your own business for all the deductions and ability to tax shelter more income. In 5-7 years or whenever the hell my wife finishes school my goal is to have a large amount of self-employment income so I can do just that. I don’t want my salary coming in at her marginal tax rate!