Under Arizona law, most assets acquired by either spouse during the marriage are community property -- owned equally by both spouses regardless of whose name is on the account or whose paycheck funded the purchase. Exceptions exist for pre-marital assets, gifts, and inheritances, but commingling these with joint accounts often erodes their separate character over time.

The most financially significant feature of community property for retirement planning is the double step-up in basis at death. In common-law states, only the deceased spouse's half of a jointly held asset steps up to fair market value. In Arizona, because both spouses own the whole asset as community property, the entire asset steps up. The surviving spouse inherits with zero embedded gain.

Titling is where most households forfeit this benefit. Joint tenancy with right of survivorship -- the default at most custodians -- only qualifies for the 50% step-up available in common-law states. Community property with right of survivorship gets the full double step-up. Most couples never check how their brokerage accounts are titled, and the custodian default is usually wrong.

The step-up does not apply to traditional IRAs and 401(k)s. Pre-tax accounts were never taxed on the way in, so every dollar distributed is ordinary income regardless of when contributions were made or how long the account was held. The step-up benefit applies specifically to the taxable brokerage account, which is why that account deserves separate, intentional management.

Community property titling does not solve the surviving spouse tax problem -- compressed brackets, higher IRMAA thresholds, and larger RMDs still arrive after the first death. But eliminating embedded capital gains in the brokerage account gives the survivor more flexibility to liquidate or reposition assets without triggering additional taxable income at the worst possible time.

For a household with $600,000 in a taxable brokerage account and $420,000 in embedded gains, the difference between joint tenancy and community property with right of survivorship titling is roughly $63,000 in avoided federal capital gains tax at the 15% rate -- and potentially more if gains push into the 20% bracket or trigger the 3.8% net investment income tax.

Three things are worth confirming before retirement: verify the brokerage account is titled as community property with right of survivorship at the custodian level -- not just in estate planning documents -- identify any assets that started as separate property and may have been commingled, and confirm that trust and beneficiary designations are consistent with Arizona community property treatment.

This is a one-time fix. Re-titling the account at the custodian takes minutes and can be worth more than a year of investment returns for a household with significant embedded gains.

• Accepting the default joint tenancy titling from brokerage custodians, which forfeits the full double step-up available under Arizona law.
• Assuming community property treatment is automatic regardless of how accounts are titled.
• Commingling inherited or pre-marital assets into joint accounts until the separate property character is lost.
• Relying on a trust or will to preserve community property treatment without correcting the titling at the custodian level.
• Applying the step-up logic to IRAs and 401(k)s, which never receive a step-up in basis regardless of community property status.