Which is better for your finances: day trading or a tax-free marriage?
The answer may surprise you.
It may surprise your spouse too.
A new study by University of Maryland economist J.B. Cooper and colleagues suggests that day trading is the way to go if you want to stay married for the long haul.
The researchers analyzed data from the federal Marriage and Family Tax Benefit (MFTCB), a program for spouses and dependents of Americans over the age of 60 that provides financial help to people who meet certain criteria.
The study focused on married couples who are filing jointly, because the tax benefit is paid jointly.
But the researchers also looked at unmarried couples who aren’t filing jointly and saw that day traders were much less likely to file jointly than married couples, because they would receive a lower benefit than their spouses.
For example, Cooper’s analysis found that in 2014, day traders in a single-person household in California received a marginal benefit of $1,300 compared with married couples filing jointly.
That same year, single-adult day traders received a benefit of about $1.60 per dollar compared with couples filing as married couples.
But Cooper’s study didn’t look at married couples or single-parent families, since those groups are more likely to have children.
In that case, married couples and single-parents receive an average benefit of around $2,400, Cooper said.
That average is higher than the average benefit for single-pregnant women who are married to a man.
It’s also worth noting that married couples in the study were not eligible for MFTCB benefits, so the benefits they received were not necessarily lower than those from other tax-deferred retirement accounts.
The findings, published in the American Economic Review, suggest that day-trading may not be the best option for most couples.
For one thing, Cooper and his colleagues also found that single-career day traders who were in the same job for a longer period of time were more likely than married day traders to receive MFTCBS benefits.
And if you’re married, it may be more difficult to save for retirement.
“It’s certainly possible that day trades could be more cost effective than married-couple day trades,” Cooper said in a press release.
“For married couples with children, it’s more likely that day trader benefit would be lower, because children benefit more than the spouse.”
And because it is not possible to match your taxes to your spouse, there’s no guarantee that you’ll be able to save enough for retirement in your day trades.
But Cooper said that couples with kids should consider getting married in order to reduce the cost of day trading.
The research paper, “The Cost of Day Trading versus Married Couples: An Empirical Study of a Tax-Deferred Retirement Account,” was co-authored by economist Jerald L. Hickey and economist Sarah J. O’Brien of the Center for Retirement Research at the University of Virginia, who are both professors at the Center on Retirement Research and Policy.
Cooper said that he has long been interested in the impact of tax-deductible retirement accounts, and he and his wife had a conversation about whether it would be appropriate for a single person to save a little bit of money each year while their husband or wife took out an account for retirement to avoid the tax.
The couple agreed to match their spouse’s contributions.
Copper, who is married, said that while he hasn’t decided whether he would start day trading, he believes it would make a lot of sense.
“If you can get into a retirement account, and the taxes are not a big factor, I think you would be better off saving,” he said.
But he added that it may not always be the right choice.
Cooper said there are other financial benefits of day trades that are less visible to both spouses, including the ability to save more quickly and to avoid taxes on withdrawals.