Investing

Tax cuts are possible, IRA contributions are up: What today's news means for your money

Although it can feel like a disconnect when the stock market rallies amid grim economic news, remember that traders look months ahead.

@nslebedinskaya | Twenty20

Market milestones, proposed tax cuts, and more are making news today. Here's how it could affect your money:

S&P marches toward its pre-pandemic high

The S&P 500 was close to a new record high Tuesday morning as traders cheered vaccine developments. The benchmark index had closed Monday just 0.97% from its February high.

Although it can feel like a disconnect when the stock market rallies amid grim economic news, remember that data like gross domestic product (GDP) recaps what has already happened. Meanwhile, traders and the market look months ahead and see reasons to remain optimistic.

Trump pitches tax cuts

During a briefing Monday, President Donald Trump said he was "looking very seriously" at new tax breaks, including a reduction in capital gains taxes and an income tax cut for middle-income families. It's unclear what those breaks might entail, but they could have an effect on your taxes next spring.

Americans add to their IRAs

The share of people who made an IRA contribution was up 18% in the first half of 2020, compared to a year earlier, according to new data from Fidelity — and contributions were up 22%.

If your expenses have gone down, consider boosting retirement contributions. Assuming you receive 26 paychecks per year, you would need to save about $230 from each to max out your IRA

VIDEO2:4602:46
Here's how tax brackets actually work

Video by David Fang

Words you've heard: Capital gains taxes

When you sell an investment for more than you paid for it, the difference is capital gains. Capital gains taxes on that profit depend on how long you have held an investment:

  • If you hold a taxable investment for less than a year, you'll pay short-term capital gains rates, which is the same as your normal income tax rate.
  • If you hold a taxable investment for one year or more, you'll pay a more favorable long-term capital gains rate of 0%, 15%, or 20%, depending on your tax bracket.

If you sell an investment at a loss, you can use those capital losses to offset capital gains and reduce your tax bill. 

And although the daily news can have an impact on your wallet, remember to take a long-term outlook when it comes to decisions on spending, saving, and investing.

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