RMR Wealth Management, LLC
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Dear John,

Now that tax season has come to an end, it is imperative to take advantage of any and all tax deferred accounts.  In order to minimize your current tax obligations and invest for retirement, you should have at least one of the following:  a corporate sponsored retirement plan, IRA, ROTH IRA, and/or SEP-IRA.

Once you have your qualified accounts in place, you may want to take advantage of certain asset classes and investment structures that work particularly well inside those vehicles.  A good philosophy is to allocate capital into more high yielding investments that produce income in your designated retirement accounts.  So regardless of fluctuations in value, they will produce income that will allow your account to grow tax deferred. 

Below are some high yielding investments:

1. High yield bonds
This class of bonds is issued by companies whose financial strength is comparatively weaker.  However, they carry a higher yield than higher quality (safer) bonds.  Interest from bonds are taxed at ordinary income rates, so if you are in a high tax bracket you may pay 35% or higher on the interest. 

2. Real Estate Investment Trust (REIT)
Think of a REIT like a mutual fund that owns real estate. The REIT then passes along the rental income from that real estate to the investor. REITs can be publicly traded or private, and may own a broad portfolio of real estate or a single property. Through REITS you can invest in apartments, hotels, office space, retail space, healthcare related properties, mortgages, storage and other types of real estate related property.

3. Preferred Stocks
Preferred stocks are an equity investment but are often compared to bonds, as they are highly interest rate sensitive.  Preferred stocks pay attractive dividends at a fixed rate.  A company is required to pay dividends to its preferred stockholders before any distribution are made to holders of common stock. This feature can make them an attractive source of high yield investment income.

4. Dividend Paying Stocks
Typically larger and healthier companies pay shareholders a dividend.  They do this as an incentive for shareholders to invest in the company.  In today’s environment, dividends are currently taxed at 20%.  Depending on your income, there may be an additional 3.8% to total 23.8%.

5. Closed End Funds
A closed end fund (CEF) is a mutual fund that typically pays out a high dividend.  Unlike the more popular open end mutual fund, a CEF does not price at the end of each day at its Net Asset Value (NAV).  Instead a CEF issues a certain amount of shares at its IPO and then trades like a stock, often resulting in discrepancies between the market price and the NAV.  Moreover, many closed end funds use leverage (they can borrow against the portfolio to make additional investments) which can contribute to their high yields. When using closed end funds keep in mind it is best to buy these investments when they are trading at a discount to their Net Asset Value (NAV).

6. Master Limited Partnerships (MLP)
A master limited partnership is a publicly traded partnership which, unlike a corporation, passes its income through to the investor. This structure allows the company to avoid paying taxes at the corporate level.  The amount of income generated by a master limited partnership will be dependent on the price and volume of the product or service they produce; most often they are in the oil, gas, and energy business. You’ll also find MLP’s that produce propane, timber, and manage pipelines.

7. Covered Call Writing
Covered call writing is an options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate income.  The objective is to earn the premium from the option sale. 

The examples above illustrate various high yielding investment strategies that I can implement in your qualified accounts.  Please contact John J. Fiorito at 212-785-4377 x224 to get a second opinion on your retirement account allocation.

Sincerely, 

 

John J. Fiorito
Financial Advisor
“Retire Comfortably and Remain Comfortably Retired”
www.rmrwm.com

Securities offered through Dinosaur Securities, LLC Member FINRA, SIPC, NFA.

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.  RMR Wealth Management, LLC does not provide legal, tax, or estate-planning advice. For questions about a specific situation, please consult a qualified adviser.   

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