November 2023

What does 5% yield on the US 10-year Treasury note mean to investors? It is more complicated than getting higher interest rates when you save and paying more interest when you borrow. There are a lot of reasons causing the yield rise, one of them is the supply and demand of the Treasury note. Simply put, the demand of the Note is less than the supply which causes the price to go down and drive the yield up. It is because the price and yield are inversely correlated. Pushing down prices more are fears of the worsening credit quality of the Note and the sell-off of the bonds. Also, investors demand for high yield to compensate for longer term bonds. The yield may go higher since the average yield is 5.9% since 1963. It could be a buying opportunity for investors who are looking for income and relatively safe investments to diversify their portfolio.

Full story: NPR

A 401(k) Plan is one of a few tax-advantaged vehicles that allow us to enjoy tax deductions and tax-deferred growth for our retirement savings. After you maximize your tax deductions by contributing $22,500, plus $7,500 if you are age over 50, you may be eligible for contributing more on an after-tax basis up to $66,000, plus $7,500 if you are age over 50 by applying the mega backdoor Roth strategy. Then, you can enjoy the tax-deferred growth and avoid the required minimum distributions for the after-tax portions. It could be advisable if you project the tax rate is going up when you retire and have a legacy plan so that your beneficiaries do not need to pay income taxes in the future. You can use this strategy if your plan allows after-tax contributions, in service conversions or distributions to a Roth IRA. It is important to check with your plan administrator to ensure that you are allowed to do so. Rules keep changing therefore if you would like to take advantage of it, you may want to act on it now.

Full story: JOURNAL OF ACCOUNTANCY

As the interest rate rises, it improves annuity guarantees. Annuity policies are created and guaranteed by life insurance carriers. They mostly invest policy holders’ premiums in fixed income and high-yield investments. Therefore, higher interest rates could benefit annuity guarantees. There are many different types of annuities offered by different carriers. How to choose the right policy for you? It depends on if you want to have guaranteed principal with interest or guaranteed lifetime income stream, and if you need the income now or later for lifetime, etc.

It is also important to examine the financial strengths of the carriers to ensure that they are financially strong so that they are able to pay back your principal and income they promised when you need it. Once you start the policy, it is instrumental to review the investment options annually and exchange the policy for another when your goals have changed and policies with more favorable rates and features are on the market to fit your needs.

Full story: Entrepreneur

As we reach the end of 2023, consider coordinating with your tax advisor and financial planner to prepare and strategize your year-end financial planning that may help you reduce this year’s tax liability and revisit your overall circumstances compared to your current financial plan and objectives. With the passage of the SECURE Act and the SECURE Act 2.0, substantial changes have been made to retirement plans, such as the required minimum distributions (RMDs) at age 73 in 2023, instead of 72 in 2022. Year-end tax planning is not only about looking back to what you did but also making sure you strategically plan for the coming year.

Full story: Kiplinger