(MONEY Magazine) – So what's in it for me? That's the question millions of taxpayers have been asking ever since late July, when Congress passed a $95 billion tax cut. Even after that landmark act, polling showed that only one American in 10 expected to reap any of the savings.

Those skeptics are in for a pleasant surprise. Though disproportionate benefits will flow to some taxpayers--mainly wealthy investors and inheritors, and big families with middling incomes--the new law will still allow almost all savers, investors and parents to keep more of their income. For a quick look at how the changes could slash your bill to the IRS, check the table on page 64. You'll see that for a couple earning $75,000 with two kids and college expenses, the tax cut can amount to more than $3,000 a year. And smart moves today, through tax planning and investment strategy, can produce even bigger savings in future years.

There is one problem: Finding your share of the savings will take more work than ever. Most of the tax breaks are narrowly targeted and phased in and out over so many timetables that you may feel like a circus tiger jumping through hoops at the crack of the tax collector's whip. Says Pete Sepp, spokesman for the National Taxpayers Union, a tax-cutting advocacy group: "This bill brings to the average American taxpayer a level of complexity once reserved for the very rich."

Another rub: The spending side of this deal actually slows the nation's move toward budget surplus that is well under way, thanks to robust economic growth. Republicans and Democrats alike wimped out on bold proposals to slow the growth of Medicare spending, which will mushroom after 2011, when the baby-boom generation begins to become eligible. "They did not kill the 800-pound gorilla that is the deficit," says former Congressional Budget Office director Robert Reischauer. "They simply locked him in a closet for a few more years."

That means that sometime in the next decade or so, Congress will probably be forced to raise taxes, or cut spending on retirees--or both. All the more reason to take full advantage of the new tax breaks, so that you and your family are better prepared when the red ink starts rising again. Here's what you need to know and do now, presented in five categories: investments, retirement savings, kids and college, your home, and your estate.

YOUR INVESTMENTS

The new law cuts the top tax rate on long-term capital gains by nearly a third, to 20% from 28%. And it falls even further for investors in the 15% income tax bracket: couples with taxable income of less than $41,201 and singles with less than $24,651. Their long-term capital gains will be taxed at 10%, down from 15%.

In general, for your gain to qualify as "long term" under the new law, you must hold your assets for more than 18 months before selling, vs. 12 months under the old law. But the new rates also apply to assets sold from May 7 through July 28 that you'd owned for more than one year and to assets you sell after July 28, so long as you have owned them for more than 18 months. Finally, for assets you buy on or after Jan. 1, 2001 and hold for at least five years, the top capital-gains rate will fall to 18% (8% for investors in the 15% bracket).

Here's what to do:

--Sell some of your overpriced winners. In MONEY's August cover story, our chief investment strategist, Michael Sivy, advised that many stocks, especially blue chips, are overpriced. He urged investors to sell as much as 20% of their holdings and rebalance portfolios that have become dangerously overloaded with stocks during the seven-year bull market. The new, lower capital-gains rates make his advice even more compelling. (See MONEY Forecast on page 190.)

--Shelter interest and dividends in your tax-advantaged accounts. While the new law sharply cuts taxes on capital gains, it leaves interest from bonds and dividends from stocks to be taxed at the same rates as ordinary income: up to 39.6%. It now makes more sense than ever to use tax-advantaged retirement accounts, such as 401(k)s and IRAs, to hold your taxable bonds and high-yield stocks.

--Go for growth in your taxable accounts. The new law makes long-term investment in growth stocks the most attractive option for your taxable accounts. That's because the returns on such shares come almost exclusively in the form of capital gains, which are taxed--only after you sell--at the new low rate.

Mutual fund investors can also take advantage of the new tax law by choosing growth-stock funds that keep their taxable short-term capital gains to a minimum. Some fund managers, for example, are adept at offsetting gains with losses--a tactic that helps to hold down annual distributions of those gains to the fund's investors. To find such funds, look for a tax-efficiency ratio of at least 85%; you can find the figure in MONEY's comprehensive fund rankings in our February and August issues. Also check out a fund's turnover rate, which measures how long a manager tends to hold the stocks in a fund before selling. Look for a low turnover rate--say, under 50%--which indicates that a manager holds his stocks an average of two years, thus helping to ensure that distributions are long term. Two good picks: Vanguard Index Total Stock Market, (three-year annual return to Aug. 1: 28.3%; 2% turnover) and Third Avenue Value (25.6%; 14%).

--Ask for incentive stock options (ISOs). If you're among the millions of employees who are offered stock options, you're better off with ISOs rather than so-called nonqualified options. That's because you generally owe no tax when you exercise an ISO. Moreover, the gain on the stock you acquire through the exercise is considered long term, provided, for example, you hold the option for more than six months before you exercise and keep the stock for 18 months before selling. In contrast, when you exercise nonqualified options, you owe ordinary income tax on the difference between the option price and fair market value of the stock on the day of the exercise.

--Match your losses and gains for maximum benefit. When the capital-gains tax rates were closer to the rates on ordinary income, investors were advised each year to comb through their portfolios in search of unpromising stocks they could sell at a loss to offset any gains, short or long, that they planned to realize. Now, though, your best tax strategy is to sell your losers only in years when you have short-term capital gains and other income to offset. Here's why: If you're in the 28% income tax bracket (taxable income between $41,201 and $99,600 for couples; $24,651 to $59,750 for singles) and you offset $3,000 in short-term gains with $3,000 in capital losses, you save $840 in taxes ($3,000 times 28%). If you use the losses to offset long-term gains, you save just $600 ($3,000 times 20%). In effect, you've lost $240--nearly 30% of the potential shelter.

--Beware the alternative minimum tax (AMT). The new law virtually guarantees that more Americans will pay the AMT--a stiff levy initially intended to hit only the wealthiest taxpayers. Congress failed to pass a proposal that would have adjusted key AMT provisions for inflation. Without that fix, by 2007 the AMT will grab an estimated 9 million taxpayers, up from 700,000 today.

And the new law's incentives to go for capital gains will push even more taxpayers into the AMT. Consider: If you realize a big capital gain, you're likely to also incur a large state income tax bill. That in turn would create an outsize deduction on your federal return--and big write-offs can trigger the AMT. So can the exercise of ISOs. Our advice: See a tax adviser before you sell any highly appreciated asset or exercise ISOs. Avoiding or mitigating the AMT may take multiyear planning.

--Look askance at annuities. Capital gains that you generate in a tax-deferred account are taxed as ordinary income when you withdraw them. So under the new law, you're sheltering your profit from a 20%--or lower--capital-gains tax only to pay income tax on it later at a rate as high as 39.6%. With an annuity, this disadvantage is especially acute. Financial planners estimate that to overcome the unfavorable tax-rate spread and an annuity's sky-high insurance and investment fees, an investor facing a 28%-or-higher tax on withdrawals would have to rack up tax-deferred gains for 15 to 25 years to come out ahead.

YOUR RETIREMENT SAVINGS

The new law includes so many inducements for retirement savings that the biggest challenge is choosing wisely among the options. Here's what to do:

--Calculate whether an IRA deduction is worth more to you now or later. Congress has finally expanded eligibility for the deductible IRA, which gives you an immediate savings on your income taxes. Under the old law, taxpayers who had employer-provided retirement plans could fully deduct IRA contributions of $2,000 a year only if their adjusted gross income (AGI) was $40,000 or less for couples, or $25,000 or less for single taxpayers. Starting on your 1998 return, those limits begin to rise; by 2007, they reach $80,000 for married couples; by 2005, they hit $50,000 for singles.

But this long-awaited reform may be eclipsed by a potent new savings vehicle called the Roth IRA after its champion, Sen. William Roth (R-Del.), chairman of the Senate Finance Committee. Here's how it works: Starting in 1998, a husband and wife with AGI up to $150,000 (and singles up to $95,000) can each make annual contributions of $2,000 to the Roth IRA. Those contributions are nondeductible. They do, however, grow tax deferred and--here's the beautiful part--the proceeds can be withdrawn tax-free after five years, provided you are at least age 59 1/2 or that you are using the money for a first-time home purchase. With a deductible IRA, by contrast, both your contributions and their earnings are taxed upon withdrawal. (If you do not qualify for a deductible or a Roth IRA, you may still fund a nondeductible IRA.)

As the table above shows, for many taxpayers, the Roth IRA promises greater long-term benefits than the traditional IRA that's deductible up front. As long as your income tax rate stays the same or goes up when you withdraw your money, you end up with more money in a Roth IRA than a deductible IRA. But if you expect your rate to be lower in retirement, you're better off with a deductible IRA. (Also, if you're financially strapped, the immediate tax deduction makes a deductible IRA a more affordable option.)

--Run the numbers to see if you should convert your current IRA to a Roth IRA. If your AGI is less than $100,000, the new law lets you roll your existing IRAs, deductible or nondeductible, into a Roth IRA. If you do so, you'll owe income tax on all previously untaxed contributions and earnings. One perk: The new law lets you spread the resulting tax bill over four years--if you execute the rollover before Jan. 1, 1999.

Is it worth paying that tax now, in return for tax-free withdrawal later? If you expect your income tax rate to drop when you retire, the answer is almost certainly no. If you expect your tax rate to be higher in retirement--say, if you're a young professional likely to earn and save a lot--the answer is probably yes. Other considerations include the number of years you'll invest in the IRA before beginning to cash out and whether you can afford to pay tax on the rollover without dipping into the IRA. The calculation can be complex, and for many taxpayers, it's worth seeking help from a tax adviser.

--Maximize your spouse's IRA. Under previous law, if you and your spouse earned AGI of more than $40,000 and if your spouse was covered by a pension but you weren't, you were deemed to be covered by his or her plan and thus prohibited from having a fully deductible IRA of your own. Starting in 1998, the new law lets a spouse without a personal pension have a fully deductible IRA as long as the couple's AGI is $150,000 or less.

YOUR (COLLEGE-BOUND) CHILDREN

If you and your spouse earn AGI of $110,000 or less ($75,000 for a single parent), you can claim a $400 credit on your 1998 tax return (rising to $500 in 1999) for each child age 16 and under. The credit phases out, disappearing completely at AGI of $120,000 (or $85,000 for singles). And that's a straightforward provision, compared with the ones aimed at defraying the cost of college.

Here's what to do:

--Pocket as much as possible in tuition credits. Starting in 1998, you can claim an annual Hope credit of up to $1,500 for tuition and fees you pay for the first two years of college for yourself, your spouse or your child. For education and training after that, you can claim a Lifetime Learning Credit of up to $1,000 a year, rising to $2,000 in the year 2003. The credits phase out for couples with an AGI between $80,000 and $100,000 and for singles between $40,000 and $50,000.

Unfortunately, financing experts fear that colleges will soak up much of the new credits by raising tuition or providing less financial aid. Either way, your tax savings from the credit could be eroded.

--Avoid the new Education Savings Accounts until more details become available. Starting next year, couples with AGI of $150,000 or less ($95,000 for single parents) can contribute as much as $500 a year for each of their children up to age 18 in an Educational Savings Account (ESA). The contributions are not deductible but grow tax deferred and may be withdrawn tax-free to pay for college. If you, for example, saved $500 a year at 8% from the time your daughter was born, you could amass $22,381 by her 18th birthday.

Unfortunately, it's unclear how the money you accumulate in an ESA will affect your eligibility for financial aid. Until federal and educational bureaucracies resolve this uncertainty, most parents should invest their college funds in growth stocks or mutual funds, says financial aid expert Kal Chany. The questions could be resolved by next year when ESAs become effective. We will, of course, keep you informed.

In the meantime, plan to fund an ESA only if you are sure you won't qualify for aid or if your children are so young that you'd prefer the relative certainty of building your own savings.

YOUR HOME

The new law repeals the rule that lets you shelter profits on the sale of your home by rolling it into a more expensive place. But, as often as every two years, a couple of any age can now pocket, tax-free, as much as $500,000 in profit on the sale of a primary residence if they lived in the house for at least two of the five prior years. Single taxpayers can pocket $250,000. Here's what to do:

--Calculate your potential gain carefully before you sell. Remember you must count not only the gain on your present home but any gains on previous homes that you sheltered by trading up.

--If your profits are under $500,000, feel free to trade down. But don't throw out records showing what you spent on your previous homes. Warns Harvey Berger, tax partner at Grant Thornton: "Over time, you could exceed the $500,000 profit cutoff--or tax laws could change again."

YOUR ESTATE

From 1998 to 2006, the new law gradually increases the estate-tax exemption to $1 million from $600,000. What to do:

--Have your attorney review your wills and trusts. Married couples in particular should make sure that they each hold enough assets in their own names so that each one takes full advantage of the bolstered exemption. And remember: An increase in the estate-tax exemption means that you can give away more property during your life without incurring a gift tax. After all, you can't take it with you, but you can leave more to your loved ones and less to the tax man.

Reporter associate: Beverly Goodman