Connect with us

Personal Finance

Tim Walz cut Social Security taxes. It’s different from Trump’s plan

Published

on

Vice presidential candidate Minnesota Governor Tim Walz looks on during a campaign rally with U.S. Vice President and Democratic presidential candidate Kamala Harris in Philadelphia, Pennsylvania, U.S., August 6, 2024. 

Elizabeth Frantz | Reuters

Trump’s plan ‘would be transformative’

Federal income taxes on Social Security are based on “combined income,” which includes your adjusted gross income, non-taxable interest and one-half of Social Security benefits.

If your combined income is between $25,000 and $34,000 — or $32,000 and $44,000 for married couples filing jointly — up to 50% of Social Security benefits are subject to tax.

For combined income above those thresholds, up to 85% of your Social Security benefits may be taxable.   

Roughly 40% of Americans who receive Social Security pay federal income tax on those benefits, according to the Social Security Administration. 

What Trump is proposing would be transformative.

Richard Auxier

Principal policy associate for the Urban-Brookings Tax Policy Center

“What Trump is proposing would be transformative,” both in terms of cost and funding Social Security, said Richard Auxier, a principal policy associate for the Urban-Brookings Tax Policy Center. 

If enacted, Trump’s proposal to exempt Social Security from federal income tax could boost the budget deficit by $1.6 trillion over 10 years, according to estimates from the Tax Foundation.

The policy could also accelerate insolvency for the Social Security and Medicare trust funds.

For Social Security (including the disability portion of the program), it may move insolvency up two years, from 2035 to 2033, and for Medicare, it may move it up six years, from 2036 to 2030.

Trump’s campaign didn’t respond to CNBC’s request for comment by press time.

Kamala Harris picks Minnesota Governor Tim Walz as running mate

Minnesota’s ‘targeted’ exemption

Enacted in 2023, Minnesota expanded the state tax exemption for Social Security, which eliminates the levy for most seniors.

For 2023, taxpayers with less than $78,000 adjusted gross income, or $100,000 for married couples filing jointly, can subtract Social Security benefits from earnings.

The policy, which exempts most seniors from income taxes on Social Security, helps Minnesota “mirror other tax codes,” explained Jared Walczak, vice president of state projects at the Tax Foundation.

As of June 21, only nine states tax Social Security to varying degrees, according to AARP research.

Minnesota’s policy “was targeted and the revenue cost was significantly lower” than Trump’s proposed federal tax exemptions, Auxier from the Tax Policy Center explained.

“States can make this play and it has different revenue, cost and budget ramifications,” he added.

Continue Reading

Personal Finance

Here’s how this DC-area high school is helping to close the wealth gap

Published

on

Hill Street Studios | Getty Images

Keith Harris, a 17-year-old high school senior at KIPP DC College Preparatory, has studied accounting, investing and budgeting, among other basic lessons, like his English, history and math curriculum.

Harris is enrolled in his high school’s NAF Academy of Business, a rigorous three-year finance program with a work-based learning component. 

Because Harris, who lives with his aunt, received a full scholarship to college next fall, he’s also able to set some of his part-time earnings aside and invest those funds.

“Through the program I developed a lot of skills, such as managing my finances and investing in stocks,” Harris said. “It laid down a good foundation for me.”

More from Personal Finance:
Number of millennial 401(k) millionaires jumps 400%
Biden ends some student loan forgiveness plans
Why the ‘great resignation’ became the ‘great stay’

Unlike other one-semester high school personal finance courses across the country, more than 160 students enrolled in the KIPP DC College Preparatory’s NAF Academy of Business program study budgeting, saving, investing and managing risk, as well as other topics, right through graduation. Some receive NAFTrack certification, a credential that demonstrates a high standard of college and career readiness.

Many students also choose to enroll in the First Generation Investors program, where they can complete capstone projects while being tutored by students from Georgetown University’s McDonough School of Business. 

Additionally, internship opportunities pair students with nearby employers, including Ernst & Young, the Navy Federal Credit Union and Verizon.

The program is paid for, in part, through federal and local funding and administered by the DC Office of the State Superintendent of Education.

Value of a financial education: Why more schools are providing financial literacy classes

The goal of the program, according to Shavar Jeffries, chief executive officer of the the non-profit KIPP Foundation, is “breaking cycles of poverty.”

KIPP DC College Prep caters to an underserved population of teens, and yet 100% of the senior class are accepted into at least one college, Jeffries noted, which is largely consistent with last year’s numbers.

“Economic security has to be a key part of it,” Jeffries said. “We have too many young people who don’t have the knowledge base to make smart financial decisions. When we can add that value and students bring these lessons home, that is also very powerful.”

Donyae Vaughan, 18, a senior at KIPP DC College Prep, will graduate this spring with a number of financial classes under her belt, including Accounting 1 and 2. She also landed a summer internship at consulting firm Accenture.

“Most people my age don’t get to learn about this stuff,” she said. 

Vaughan, who has plans to attend dental school, said the coursework compliments what she has been taught at home. “My family is big on saving,” she said.

“Last year we learned a lot about investments, savings and stocks and how we can grow our money,” she said. “Every time I learn something new, I would go home and talk about it with my mom.”

Vaughan said she also learned about the merit of locking in a top-yielding certificate of deposit through the program.

A trend toward in-school finance classes

“The three years is a level of robust programming we don’t typically see,” said Raven Newberry, managing director of policy at the National Endowment for Financial Education.

As of 2024, about half of all states require or are in the process of requiring high school students to take at least one financial literacy course before they graduate, according to the latest data from Next Gen Personal Finance, a nonprofit focused on providing financial education to middle and high school students.

Although some schools and school districts have required students receive some financial education even without a state mandate, it is the schools that serve students from lower socio-economic backgrounds that tend to fall short in financial education offerings, according to Newberry.

“When a state requires it, that helps close that gap,” she said.

Financial literacy leads to financial wellbeing

In addition, a 2018 report by the Brookings Institution found that teenage financial literacy is positively correlated with asset accumulation and net worth by age 25.

Among adults, those with greater financial literacy find it easier to make ends meet in a typical month, are more likely to make loan payments in full and on time and less likely to be constrained by debt or be considered financially fragile.

They are also more likely to save and plan for retirement, according to data from the TIAA Institute-GFLEC Personal Finance Index based on research collected annually since 2017.

Subscribe to CNBC on YouTube.

Continue Reading

Personal Finance

If interest rates stay ‘higher for longer,’ the winners are those with cash accounts

Published

on

Images By Tang Ming Tung | Digitalvision | Getty Images

Many people, especially those with debt, will be discouraged by the recent Federal Reserve forecast of a slower pace of interest rate cuts than previously forecast.

However, others with money in high-yield cash accounts will benefit from a “higher for longer” regime, experts say.

“If you’ve got your money in the right place, 2025 is going to be a good year for savers — much like 2024 was,” said Greg McBride, chief financial analyst at Bankrate.

Why higher for longer is the 2025 ‘mantra’

Not sure the Fed will even get two rate cuts off in 2025, says Roger Ferguson

It started throttling them back in September. However, Fed officials projected this month that it would cut rates just twice in 2025 instead of the four it had expected three months earlier.

“Higher for longer is the mantra headed into 2025,” McBride said. “The big change since September is explained by notable upward revisions to the Fed’s own inflation projections for 2025.”

The good and bad news for consumers

The bad news for consumers is that higher interest rates increase the cost of borrowing, said Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

“[But] higher interest rates can help individuals of all ages and stages build savings and prepare for any emergencies or opportunities that may arise — that’s the good news,” said Cheng, who is a member of CNBC’s Financial Advisor Council.

More from Personal Finance:
Credit card debt set to hit record levels
More than 90% of 401(k) plans now offer Roth contributions
Why the ‘great resignation’ became the ‘great stay’

High-yield savings accounts that pay an interest rate between 4% and 5% are “still prevalent,” McBride said.

By comparison, top-yielding accounts paid about 0.5% in 2020 and 2021, he said.

The story is similar for money market funds, he explained.

Money market fund interest rates vary by fund and institution, but top-yielding funds are generally in the 4% to 5% range.

However, not all financial institutions pay these rates.

The most competitive returns for high-yield savings accounts are from online banks, not the traditional brick-and-mortar shop down the street, which might pay a 0.1% return, for example, McBride said.

Things to consider for cash

There are of course some considerations for investors to make.

People always question which is better, a high-yield savings account or a CD, Cheng said.

“It depends,” she said. “High-yield savings accounts will provide more liquidity and access, but the interest rate isn’t fixed or guaranteed. The interest rate will fluctuate, nor your principal. A CD will provide a fixed guaranteed interest rate, but you give up liquidity and access.”

Additionally, some institutions will have minimum deposit requirements to get a certain advertised yield, experts said.

Further, not all institutions offering a high-yield savings account are necessarily covered by Federal Deposit Insurance Corp. protections, said McBride. Deposits up to $250,000 are automatically protected at each FDIC-insured bank in the event of a failure.

“Make sure you’re sending your money directly to a federally insured bank,” McBride said. “I’d avoid fintech middlemen that rely on third-party partnerships with banks for FDIC insurance.”

A recent bankruptcy by one fintech company, Synapse, highlights that “unappreciated risk,” McBride said. Many Synapse customers have been unable to access most or all of their savings.

Don’t miss these insights from CNBC PRO

Continue Reading

Personal Finance

Credit card debt set to hit record levels as consumer holiday spending rises

Published

on

A woman shops at a Target store in Chicago on Nov. 26, 2024.

Kamil Krzaczynski | AFP | Getty Images

Heading into the holidays, many Americans were already saddled with record-breaking credit card debt. And yet, consumer spending is set to reach a fresh high this season. 

The National Retail Federation reported last week that spending between Nov. 1 and Dec. 31 is “clearly on track” to reach a record, between $979.5 billion and $989 billion.

“Job and wage gains, modest inflation and a heathy balance sheet have led to solid holiday spending,” the NRF’s chief economist, Jack Kleinhenz, said in a statement.

But other reports show that many shoppers are increasingly leaning on credit cards to manage their holiday purchases.

More from Personal Finance:
After the holidays comes ‘Returnuary’ 
Economists have ‘really had it wrong’ about recession
Trump tariffs would likely have a cost for consumers

To that point, 36% of consumers have taken on debt this season, a recent report by LendingTree found. And those who dipped into the red racked up an average of $1,181, up from $1,028 in 2023, according to the survey of more than 2,000 adults.

“No one should be surprised that so many Americans took on debt this holiday season. Prices are still really high and that means that lots of Americans simply didn’t have any choice,” said Matt Schulz, LendingTree’s chief credit analyst.

“Inflation is still a big deal in this country, and it’s having a huge impact on people’s finances, including their holiday spending,” he said.

Credit card debt is at an all-time high

Heading into the peak holiday shopping season, credit card balances were already 8.1% higher than a year ago, according to the Federal Reserve Bank of New York’s report on household debt.

Further, 28% of credit card users had not paid off the gifts they bought last year, according to another holiday spending report by NerdWallet, which polled more than 1,700 adults in September.

Fmr. Saks CEO Steve Sadove talks consumer spending trends over the holidays

In some cases, Americans’ willingness to spend is a sign of confidence, Schulz noted. “Some surely took on debt because they didn’t have any other choice, while others did so because they wanted to splurge a bit and weren’t concerned about paying a little extra interest in order to get what they or their loved one really wanted.”

However, credit cards continue to be one of the most expensive ways to borrow money. The average credit card rate is currently more than 20% — near an all-time high. Some retail card APRs are even higher.

The problem with credit cards

Of those with debt, 21% expect it’ll take five months or longer to pay it off, LendingTree also found. At that rate, sky-high interest charges will exact a heavy toll, according to Schulz.

“That means less money to put towards other big goals for the new year, such as growing an emergency fund or saving for college,” he said. “In more extreme cases, it may mean you’re less able to pay essential bills or keep food on the table. In either case, it’s a big deal.”

Don’t miss these insights from CNBC PRO

Continue Reading

Trending