Financial Perspectives Q&A

How to manage your money

Timely answers to your investment, retirement and financial planning questions

Given ongoing market volatility, significant economic impacts stemming from the global pandemic and leadership changes in Washington, D.C., you may have questions about the effect on your financial future.

Everyone’s circumstances are unique, and answers will vary based on your financial situation and/or investing timeline. If you don’t see an answer here addressing your particular concern or need, remember our financial professionals continue to be available to help you navigate the uncertainty. 

Impact to my taxes

A change of leadership in the White House and U.S. Senate could result in major tax policy changes. While details may not be clear for weeks or months to come, we can help you understand how potential changes may impact your planning in the future.

  • Q. What are anticipated tax policy changes that would affect me most as an individual taxpayer? hides details

    A. Most tax policy proposals under the Biden administration will likely focus on the corporations and wealthier Americans shouldering a larger share of the nation’s tax burden. Potential changes that would affect the broadest swath of taxpayers to include:

    • Increase in tax brackets. The highest marginal tax rate under current law is 37%. However, it’s possible that tax brackets across the board could be adjusted back to the pre-2017 levels, which means 39.6% at the peak rate. This would result in a tax increase for most individuals.
    • Renewed phase down of itemized deductions. The Tax Cuts and Jobs Act (TCJA) of 2017 put no limit on itemized deductions, regardless of income level. The Biden administration may propose limiting itemized deductions beyond the 28% tax bracket. This could reduce the benefit by 11.6% for those earning more than $400,000 per year.
    • Change to state and local tax deductions. The TCJA implemented a cap of $10,000 on real estate, personal property and either income or sales tax deductions. This had the biggest impact on high value property owners and/or those who live in high-income tax states. The Biden administration may propose repealing this cap.

    Read more about potential tax policy changes and how they could affect you.

  • Q. What are anticipated tax policy changes that would affect me most as a business owner? shows details

    A. Among the notable changes made in the Tax Cuts and Jobs Act (TCJA) of 2017 for businesses and business owners was a reduction in the corporate income tax rate from 35 percent to 21 percent.

    An increase in the corporate tax rate is one of several potential change we’re anticipating this year:

    • Change in the corporate tax rates. The current 21 percent corporate income tax rate may increase to 28 percent.
    • Elimination of deduction for pass-through entities. The TCJA includes a 20 percent tax deduction on qualified business expenses for owners of sole proprietorships, partnerships, S-Corporations and LLCs. This may be eliminated in the next wave of tax legislation for those earning more than $400,000.
    • Other provisions that affect specific industries. A range of proposals is being considered, including eliminating the tax deduction for the costs of direct-to-consumer prescription drug advertising, imposing a tax on pharmaceutical companies if drug price increases exceed inflation, and an expansion of clean energy tax initiatives.

    Read more about potential tax policy changes and how they could affect you.

  • Q. What is expected to happen to the capital gains tax rate? shows details

    A. Currently, long-term capital gains are taxed at the rate of 0%, 15% or 20%, depending on your marital status and your taxable income. If current laws are changed, taxpayers with incomes over $1 million would have long-term capital gains and qualified dividends taxed at their ordinary income tax rate. This could be at the 39.6 percent tax rate. Note that a 3.8% Net Investment Income Tax (NIIT) also applies to higher NIIT earners, which could result in a combined long-term capital gains tax rate of 43.4 percent.

    Read more about potential tax law changes.

  • Q. Is it expected that there will be changes to the gift and estate tax exemption? shows details

    A. One of the most dramatic changes in the Tax Cuts and Jobs Act (TCJA) of 2017 was doubling the unified gift and estate tax exemption. Even though it’s scheduled to phase out after 2025, it is expected that the Biden administration may make modifications before then.

    In 2021, the exemption is $11.7 million for an individual, or $23.4 million for married couples. Under the current law, the exemption amount would revert back to the pre-TCJA amount, approximately $6 million for an individual and $12 million for a married couple, beginning in 2026. However, President Biden has supported returning estate tax exemption amounts to 2009 levels, approximately $3.5 million per taxpayer.

    Read more about potential estate tax law changes, including to the step-up in cost basis for inherited assets.

  • Q. How much of my charitable contributions can I deduct from taxes? shows details

    A. Due to the CARES Act, tax filers who choose the standard deduction for their 2020 taxes will be able to claim a maximum deduction of $300 for qualifying charitable contributions.

    Tax filers who choose to itemize deductions on their 2020 return will be able to deduct charitable contributions equal to as much as 100 percent of their adjusted gross income (or AGI).

    Read more about how the CARES Act impacts charitable contributions.

Impact to my investment portfolio

  • Q. What effect will the coronavirus vaccines have on the economy? hides details

    A. As vaccine distribution continues to evolve through 2021, there are many factors that will determine the short- and long-term economic impact, including:

    • How fast the vaccines can be produced and widely distributed
    • Which populations will be prioritized for vaccination
    • The public perception and acceptance of the vaccines

    Life after a successfully distributed vaccine and/or medical regimen will still look different than it did pre-pandemic. How companies and consumers move forward will also impact the economy, including:

    • The future of business and leisure travel and hospitality
    • A re-imagined corporate and commercial real estate footprint
    • More flexibility in how and where individual’s live and work

    When it comes to the market, we maintain a “glass half-full” perspective. We think investors will benefit from owning technology and healthcare stocks over time given their positive long-term impact on society. Diversified portfolios should include bond exposure with a focus on high-quality municipal fixed income, non-agency mortgage-backed securities for non-taxable strategies, and high-quality corporate bonds.

    Read more about how the COVID vaccines affect the economy and the markets.

  • Q. A few of my investments are down — can I deduct any of these losses on my taxes this year? shows details

    A. Tax-loss harvesting is a strategy that may allow you to cut your tax bill by selling investments at a loss and deducting the losses – up to $3,000 a year – against some or all of the capital gains taxes you owe on other investments that you sold for a profit.

    • This applies only to investments held in taxable accounts. Since growth on investments in tax-advantaged accounts – such as 401(k)s, 403(b)s, IRAs and 529s – isn’t taxed by the IRS, you don’t have to worry about minimizing gains.
    • You can claim up to $3,000 in losses on your taxes in a given year to offset taxable income. This amount is reduced to $1,500 per year if you’re married and filing separate tax returns.

    However, don’t sell stocks just to qualify for a tax break. The point of investing is to achieve growth over the long term that beats the returns produced by more conservative assets like savings, CDs and money market accounts. In exchange, you agree to accept exposure to short-term volatility. Unless there is something fundamentally wrong with the investment that’s caused it to lose value, you may be better off holding on to it and allowing its growth over time to smooth out your returns.

    If you decide to sell, put your proceeds to smart use. You can use them to rebalance your portfolio if your feelings toward risk have shifted. Or you might choose to buy more stock or buy into a mutual fund that provides you with exposure to an asset class your portfolio lacks.

    Read more about when to consider rebalancing your portfolio.

  • Q. If I am invested in bonds, what should I do now? shows details

    A. Bonds play two important roles in investment portfolios and financial plans:

    • They provide a steady source of cash flow into portfolios.
    • They can provide some defensive characteristics relative to global stocks, especially higher quality, longer maturity bonds.

    When it comes to constructing your bond portfolio, it’s important to guard against falling into one of two “traps”:

    • Chasing higher incomes by owning lower-quality securities at the expense of longer maturity, higher-quality bonds. This will expose you to higher risk in difficult environments.
    • Owning too much cash, perhaps fearing interest rates will rise. This will lead to underperformance over time, given the value and moderate risk of owning bonds further out in maturity.

    If bonds continue to be appropriate for your financial plan, we recommend adding high-quality bonds into your portfolio. Investment-grade corporate and high-quality municipal bonds offer attractive yields compared to Treasuries. For some investors, reinsurance offers an opportunity to take advantage of a differentiated return stream.

    Read more about high-quality bonds and reinsurance in managing downside risk.

  • Q. What’s a ‘weakening’ dollar, and what does it mean for me? shows details

    A. The U.S. dollar’s value is measured by its purchasing power compared to other countries’ currencies.

    A weakening U.S. dollar means that the same dollar can buy fewer foreign goods. Or, said differently, it takes more dollars to buy the same amount of foreign goods. Consequences of this dynamic include:

    • A falling dollar is often associated with rising inflation due to the effect of making foreign goods more expensive to import.
    • Conversely, a weakening dollar means that U.S. goods appear cheaper to foreign buyers, which can make U.S.-manufactured products more price attractive and benefits U.S. exports.

    The weakening U.S. dollar – due in part to government policies significantly expanding the money supply in an effort to address economic contraction resulting from the global pandemic – is a reversal of the stronger U.S. dollar trend that had been in place for the last two years. Should this new weaker dollar trend persist, it would likely coincide with higher commodity prices, higher inflation, higher U.S. Treasury interest rates and perhaps even stronger performance for foreign stocks compared to U.S. stocks.

    Read more about the effects of inflation on investments.

  • Q. Is there anything I can do to make my portfolio more stable? shows details

    A. There are a few steps you can take when the market is volatile that may help you better weather the impact:

    • Review your financial plan, if you have one, or establish one if you don’t.
    • Revisit your risk tolerance to see if you’re still comfortable with your investment mix.
    • Review your fixed income, or bond, allocation. Government and high-quality bonds may help balance your portfolio
    • Remember it’s about time in the market, not timing the market.

    Read more about how to handle market volatility.

  • Q. Is now a good time to increase my investments, such as buying more stock? shows details

    A. If you’re interested in timing the market, the answer is generally no.

    In theory, some investors believe they should buy when prices are low but rising and sell when prices are high but falling. However, to time the market perfectly, you have to be successful twice: once when you buy and then again when you sell. Getting the timing right on both ends is doubly difficult.

    Instead of trying to time the market, consider spending time in the market by buying stocks and holding on to them regardless of market fluctuations. This is a long-term buy-and-hold investment strategy.

    Read more about the buy and hold investment strategy.

  • Q. Should I be revisiting my risk tolerance? shows details

    A. It’s fair to take a closer look at how you feel about the amount of risk you have in your portfolio, especially since you’re experiencing it real time. If you’re willing to hold your portfolio through the current period of market volatility, then you appear to have made a correct assessment of your risk tolerance. However, if you find yourself “losing sleep at night” over the market’s recent ups and downs, it may be time to re-assess your risk tolerance and consider adjusting your portfolio as necessary.

    Learn more about assessing your risk tolerance.

Impact to my retirement

  • Q. If I borrowed money from my retirement account, do I need to pay it back? hides details

    A. Yes, if you took out a loan from your 401(k), you’ll have to pay that amount back plus interest within 5 years, in most cases.

    Note that the CARES Act increased the maximum amount you could borrow from your 401(k), from $50,000 to $100,000. However, not all employers have adopted the new CARES Act provisions, so be sure to check with your employer to see what options are available to you.

    Read more about CARES Act provisions related to IRAs and workplace savings plans.

  • Q. Should I rollover an old 401(k) account when the market is volatile? shows details

    A. The answer depends on what’s important to you.

    If you leave your money in your old 401(k) account, you can take penalty-free withdrawals if you leave your job at age 55 or older.

    If you’re interested in lower-cost investment options, leave your money in your old account or roll it over into your new employer’s plan, if the option is available; not all plans allow this.

    If you rollover your 401(k) into an IRA, you’ll have a broad range of investment options available to you, which are typically limited in a 401(k). You can withdraw money from an IRA without penalty for a qualifying first-time home purchase or higher education expenses. Rolling over 401(k)s may also make it easier to manage your overall finances if accounts are consolidated in one place.

    You may want to compare fees, investment options, and plan rules before making a decision. If you do roll your 401(k) to a new account, have the administrator of your old 401(k) do a direct transfer to your new account. Indirect transfers may be subject to a 20 percent federal income tax.

    Read more about rolling over your 401(k).1

Impact to my financial plan

  • Q. Is it a good time to review my life insurance coverage? hides details

    A. While there’s never a bad time to take another look at your life insurance policy, now can be a particularly good time.

    As both health and economic uncertainty continue due to the pandemic, life insurance can be one way to make sure you and your loved ones are protected if your situation changes unexpectedly.

    You’ll want to review and consider revising your coverage if anything in your life has changed, such as:

    • Your income, either through a job loss or promotion
    • A birth or death in your family
    • You get married or divorced
    • Your health or lifestyle

    It can be hard to know how much life insurance you need or which type of policy to purchase, so be sure and work with your financial professional to determine your coverage needs.

    Read more about your life insurance options.

  • Q. I have student loan debt. Is now a good time to consolidate my loans? shows details

    A. The answer depends on a couple of factors.

    First, are the interest rates on your loans fixed or variable? If you took out federal loans before 2013, there’s a chance it could have a variable rate. A variable rate rises if federal interest rates rise and falls if interest rates fall. All federal student loans after 2013 are fixed rate loans, with the interest rate staying the same for the life of the loan.

    If you have variable interest rate loans, consolidating would allow you to switch to a fixed interest rate, which may be helpful to you if you anticipate repaying your loans off over a long period of time.

    Second, how much time and money do you have left? If your monthly payments are manageable, you have a few thousand dollars left to pay or 1-2 years left to go, consolidation may not be the best option for you. If you’re struggling to manage your monthly payments, however, consolidation could be a helpful option.

    Read more about student loan terms.

  • Q. Is it smart to buy a house right now? shows details

    A. Yes, if you feel financially secure and not at risk of losing your job, now can be a good time to purchase a house. Mortgage rates are historically low, and many open houses and showings have gone virtual, helping to lessen concerns about health and safety risks.

    Keep in mind that not all mortgage rates are the same. The interest rate for an adjustable rate mortgage (ARM) follows the federal interest rate, rising and falling accordingly. So, while an ARM may be affordable now, your rate will likely increase once the economy stabilizes.

    Fixed-rate mortgages are based on the Treasury rate rather than the federal interest rate; however, the federal interest rate has an indirect effect on the Treasury rate, which has resulted in a lower interest rate.

    It’s also worth noting that lower mortgage and interest rates don’t impact other home ownership costs like property taxes, homeowner’s insurance or closing costs.

    Read more about the financial decisions when buying a home.

  • Q. Is now a good time to refinance my home mortgage? shows details

    A. It’s a good question, given today’s historically low interest rates. However, deciding whether refinancing is right for you depends on your specific circumstances. As you consider your options, a good place to start is to ask yourself these questions:

    • Am I going to stay in the home for a period of time?
    • Can I lower the interest rate on my mortgage?
    • Will my monthly payments be reduced, or can I maintain monthly payments similar to my current mortgage but reduce the term of the mortgage?
    • Are refinancing costs manageable for me?
    • Will the interest expenses I save by refinancing more than cover the cost of doing so?

    If you can answer yes to all of these questions, refinancing may be worth a closer look. If so, your savings could free up cash to put toward your other financials goals such as investing for retirement or saving toward a college education. Or if you shorten the term of your loan, you may significantly reduce interest costs and pay off the mortgage sooner.

    Read more about refinancing a mortgage with U.S. Bank.

  • Q. How does it impact my finances when the Federal Reserve lowers interest rates? shows details

    A. There has been a lot of attention given to the Federal Reserve dropping the interest rates to near 0%. The Federal Reserve has taken this action to stimulate the economy. When interest rates go down, purchases made with mortgages, loans or credit cards become more affordable. This can have a positive impact to your personal finances when managed responsibly.

    Read more about how recent interest rate cuts may affect you.