California’s new retirement law, effective January 1, 2025, reduces protections on tax-qualified retirement plans, impacting debtors who may now face increased vulnerability to creditor claims. This law applies a means test to assets in 401(k)s and similar plans, allowing judges to assess how much of these funds can be claimed by creditors based on the debtor’s other assets and timeline to retirement. 

While federal ERISA protections still shield assets within qualified plans from creditors, these safeguards do not extend to distributions, meaning assets will be only partially protected once withdrawn. 

Some debtors may consider relocating to states offering full retirement asset exemptions, while others might roll their assets into self-directed IRAs, potentially securing greater protection through international investments. 

Finsum: The election will play a pivotal roll in the future of retirement regulation and advisors should monitor the developments. 

Expanding tax-efficient investing options, firms are now utilizing direct indexing technology to make separately managed accounts (SMAs) more advantageous for tax management. Unlike funds, SMAs allow for individualized tax strategies because the investor owns the underlying assets directly, an option now expanding with high demand. 

Direct indexing remains the most common approach for tax-efficient SMAs, enabling tailored tax-loss harvesting by strategically selling select stocks. Some firms are also adapting this approach to actively managed equities, though balancing loss harvesting with stock selection can be complex. 

Tax management in fixed-income portfolios, though more limited, still offers advantages, especially during interest rate hikes. 

Finsum: Model portfolios are gaining traction, for similar tax efficiency reasons.

Recent movements in some of the most sensitive global assets suggest that the Federal Reserve’s decision to lower interest rates may have come too soon or might not be sustainable. Since the Fed’s rate cut in mid-September, emerging-market assets have acted as if borrowing costs will stay elevated, leaving them vulnerable. 

New risks, including rising U.S. Treasury yields and a stronger dollar, have overshadowed any benefits from the rate cut, with concerns over China’s lackluster stimulus and the potential return of Donald Trump to the presidency adding to market uncertainty. 

Investors in emerging markets are now positioning themselves defensively in the face of a stronger U.S. economy and a weakening Chinese one. While there was initial optimism, strong U.S. data and political tensions have reignited fears of persistent inflation. 

Finsum: This could have traders reassessing their strategies, unsure of how much more support they can expect from central banks.