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Market Wrap-up for Jan. 21 - 3 Takeaways from the State of the Union Address

Jared Cummans Jan 21, 2015

Last night, President Barack Obama delivered the annual State of the Union address. As per usual, the address highlighted the accomplishments of Obama and his administration, but the president also took plenty of time to lay out proposals for the nation that investors will want to keep an eye on.

For the first time in his presidency, Obama’s State of the Union came before a Republican-controlled congress. The president pulled no punches, however, and was not afraid to make bold statements, likely because there are no major elections from now until he exits office. Below, we break down three of the key proposals to watch as an investor:

529 Savings Plans Tax Change: One of the president’s proposals was to remove some of the tax sheltering that 529 savings plans have enjoyed all of these years. These plans, as a refresher, allow one to save for their child’s college education by making tax-free contributions and also tax-free withdrawals down the road. The president proposed that withdrawals should now be subject to taxes. Current accounts would be grandfathered into the old rules, but any new accounts would be subject to taxes on the gains in the savings plan.

Capital Gains Tax Hike: The president proposed raising the capital gains tax rate for those in the top bracket to 28% from 23.8% in an effort to afford tax breaks for middle class families. The White House noted that 99% of these additional taxes would be paid by the wealthiest 1% of Americans. With a Republican-controlled congress, however, this lofty proposal will more than likely never see the light of day.

Heightened Cyber Security: There is less of a direct action to watch on this proposal, but the president took the time to address that cyber security in the country needs to be upgraded, whether it is the database of Target (TGT ) or the federal government. Developments on this end could help ensure the safety of some of the world’s biggest retailers that were more or less under siege in 2014.

The State of the Union is often more bark than bite, but it still merits the attention of investors. As we have seen in the past few years, moving from a proposal to a law is typically a painstaking and nearly impossible process, so do not expect to see any of these changes take place overnight. Instead, look for the above proposals to be themes throughout the year (and take this time to read more into 529 savings plans for your child if you haven’t done so already).

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