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MONEY EYE ON J U L A U G 2 011 JULAG201 GAG 2G A U A 529 College Savings Plans A Smart Start Toward a College Education 2 FR2011 0506 0653 E FE ATURE S 62 16529 College Savings Plans A Smart Start Toward a College Education An introduction to the features and the benefits of using a 529 college savings plan to save for college 12 8 Potential Sources of Investment Income Special Needs Trust
DRIVE GREEN,and reap the tax rewards, Up to a 7 500 Federal Tax Credit for Up to a 2 500 Federal Tax Credit for Up to a 4 000 Federal Tax Credit for. Electric Drive Low Speed and 2 or 3 Wheeled Converting Vehicles. Vehicles Electric Vehicles to Electric Drive, Up to a 7 500 tax credit is available if you You can claim a credit for purchasing a new If you convert a vehicle to a qualified plug in. purchase a new plug in electric drive vehicle low speed plug in electric vehicle with electric drive vehicle before the end of 2011. a battery capacity of 4 kilowatt hours or you can claim a credit for part of the cost. The credit will begin to phase out with more, respect to a manufacturer s vehicles after or a 2 or 3 wheeled plug in electric The credit is equal to 10 of the cost of. the manufacturer has sold 200 000 eligible vehicle with a battery capacity of 2 5 the conversion up to a maximum credit of. vehicles None have so far kilowatt hours 4 000 per vehicle. The credit amount varies depending on the You may not claim this credit if the vehicle is You may claim this credit even if you previ. vehicle s battery capacity The following eligible for the plug in electric drive vehicle ously claimed a hybrid vehicle credit for the. vehicles qualify for a 7 500 credit as of May credit described at left same vehicle. The credit is equal to 10 of the cost of the, 2011 Chevrolet Volt General Motors vehicle up to a maximum credit of 2 500. 2011 Fortwo electric vehicle Smart USA per vehicle. 2011 Leaf Nissan, 2011 LiFe Wheego This credit can only be used for qualified. vehicles purchased before the end of 2011,2011 Roadster Tesla Motors. Your state may also offer incentives for choosing an energy efficient vehicle. UP FRONT FE ATURE S fyi, 2 Drive Green and Reap the Tax Rewards 6 529 College Savings Plans A Smart Start 16 Vienna A Few of My Favorite Things. Toward a College Education 18 See It This Summer, 3 The Real Value of Tax Exempt Income An introduction to the features and the. benefits of using a 529 college savings plan 19 Quiz Where in the World Are You. 4 Private Foundations to save for college,A grant making charitable strategy. 12 8 Potential Sources of Investment Income 2011 Quinn Communications Inc. 5 Special Needs Trust This article looks at eight potential sources of This publication was created by Quinn Communications Inc. A strategy for providing financial support investment income including bonds dividend www quinncom biz for the use of the sender It is intended to. for a disabled person without endangering paying stocks real estate investment trusts and provide general information on the subject matter covered It is not. their eligibility for government benefits master limited partnerships intended to provide a financial legal or other professional service. The information in this publication may not be appropriate for you. Contact a financial or legal professional before making changes to. your plans,2 FR2011 0506 0653 E,The Real Value of Tax Exempt Income. Taxable Equivalent Yields,hen comparing the interest rates. Federal Income Tax Bracket,paid by corporate bonds and. municipal bonds one may wonder 10 15 25 28 33 35,Tax Exempt. why someone would invest in mu Yield,nicipal bonds which typically pay a lower. 1 0 1 11 1 18 1 33 1 39 1 49 1 54,rate of interest The answer lies in how the. interest income is taxed 1 5 1 67 1 76 2 00 2 08 2 24 2 31. The interest income from corporate 2 0 2 22 2 35 2 67 2 78 2 99 3 08. bonds is subject to ordinary income taxes,2 5 2 78 2 94 3 33 3 47 3 73 3 85. while the interest income from many mu, nicipal bonds is free from federal income 3 0 3 33 3 53 4 00 4 17 4 48 4 62. taxes and if the bonds were issued in your 3 5 3 89 4 12 4 67 4 86 5 22 5 38. state may be free from state and local,4 0 4 44 4 71 5 33 5 56 5 97 6 15. income taxes So a municipal bond with, a lower interest rate may provide more 4 5 5 00 5 29 6 00 6 25 6 72 6 92. income than a taxable bond once taxes are 5 0 5 56 5 88 6 67 6 94 7 46 7 69. figured in particularly for individuals in,5 5 6 11 6 47 7 33 7 64 8 21 8 46. the top tax brackets, To determine which type of bond offers 6 0 6 67 7 06 8 00 8 33 8 96 9 23. the greater after tax income you need to 6 5 7 22 7 65 8 67 9 03 9 70 10 00. compare apples to apples or in this case,7 0 7 78 8 24 9 33 9 72 10 45 10 77. you need to compare the tax exempt yield,to its taxable equivalent. Let s say you are in the 35 federal in,come tax bracket and you are considering EXAMPLE. a municipal bond yielding 4 that is ex, empt from federal income taxes Using the For individuals. chart at right you can see that for someone in the 35 tax exempt taxable. in your tax bracket the taxable equivalent tax bracket a yield yield. yield is 6 15 for a 4 tax exempt bond,So you would need a taxable bond yielding. more than 6 15 to beat the interest income, The taxable equivalent yields are based on 2011 federal income tax. from the 4 tax exempt bond n rates only Bonds that are also exempt from state and local taxes. will have higher taxable equivalent yields than shown here. Your financial advisor can help you determine, iStockphoto com Page 2 Eduard Titov Page 3 Irina Tischenko. whether tax exempt municipal bonds may be a,good investment choice for you. PLEASE NOTE Bonds are subject to interest rate risk When interest rates rise bond prices fall Also although the interest from tax exempt municipal bonds is exempt. from federal income tax gains on the sale of municipal bonds are taxable The interest from some municipal bonds may be subject to the alternative minimum tax. FR2011 0506 0653 E 3,GIFT PLANNING,Who should consider it. Private Individuals and families with say 1 million or more to donate to charity. Foundations What is it, A grant making A charitable trust or nonprofit corporation you set up for the purpose of. charitable strategy making grants,What are the benefits. Maximum control over grants and the foundation s assets. IF YOU LIKE THE IDEA of donating now Family members can be named to the foun. and making grants later consider setting dation s board of directors and participate. up a private foundation to carry out your in making grants They can also run the. charitable vision Once your foundation day to day operations of the foundation. is established you can contribute cash Running a private foundation is more. securities and other assets to it and receive complex than simply participating in a. an immediate tax deduction for your con donor advised fund program With a foun. tribution You can then make grants to the dation there are tax returns to file and IRS. charities of your choice rules to follow As a result many private. Sounds a bit like a donor advised fund foundations hire staff or contract with com. you say There are strong similarities panies that specialize in managing founda. Both allow immediate tax deductions for tions to handle the day to day operations. contributions and both enable you to make Due to the costs involved in setting up. grants A private foundation however of and running a private foundation this form. fers you greater control over how the assets of charitable giving may not make sense. are invested and which organizations will unless you have say 1 million or more to. receive grants contribute But if you have the means and. A private foundation also offers you the want maximum control a private founda. opportunity to instill a tradition of giving tion can help you achieve your charitable. in your family that can last for generations goals for generations to come n. Your financial advisor can help you choose the giving arrangement. that fits your charitable goals and financial objectives. 4 FR2011 0506 0653 E,E S TATE PL ANNING, iStockphoto com Page 4 Eva Serrabassa Page 5 Rachel Dewis. Special Needs,A strategy for providing support,for a disabled person without. endangering their eligibility for,government benefits. Who should consider it ARE YOU PLANNING to leave an inheritance intended for and will result in reduced SSI. or make a financial gift to a disabled person payments. Families with a disabled family, who depends on government benefits such The money in the trust can generally. as Medicaid and Supplemental Security safely be used for the disabled person s. Income SSI If so be careful how you vacations entertainment education. What is it do it Leaving or giving assets directly to a telephone service and computers things. A trust designed to provide disabled individual may increase their re that may add considerably to their quality. supplemental financial support sources to the point that they are no longer of life. eligible for government benefits An attorney with experience in spe. for a disabled person, There is a way around this predicament cial needs planning can help you set up a. and that way is to make your bequest or gift special needs trust for your child Once. to a special needs trust set up for the benefit the trust is set up consider notifying other. What is the benefit, of the disabled person family members and friends to direct their. Enhances a disabled person s, The person who manages the trust the gifts and bequests to the trust so that they. quality of life without harming do not inadvertently harm your child s. trustee can use the money in the trust to, their eligibility for government pay for supplemental items and services eligibility for government benefits. benefits for the disabled person but generally With advanced planning you can help. not for their basic support Using money ensure your loved one s quality of life after. from the trust for basic support food and you are gone and preserve the benefits he or. shelter duplicates what SSI payments are she depends on n. Please consult your financial and legal advisors about the best way. to help ensure the financial security of your family and other loved ones. FR2011 0506 0653 E 5,EDUC ATION,529 College Savings Plans. A Smart Start Toward a College Education, Would writing a check for 35 000 every year for four years put a crimp in your cash flow That s about the price of tuition fees and. room and board at many four year private colleges today Future prices will likely be even higher To help families save for rising college. costs states offer 529 college savings plans with tax benefits designed to help maximize savings Here s an introduction to these popular. savings plans Your financial advisor can provide the details as well as determine whether a 529 plan is a smart savings vehicle for you. What are 529 college savings plans ate additional earnings This may help your such as tax deductions matching grants and. 529 college savings plans are state spon 529 plan savings grow faster than savings scholarships to state colleges. sored plans with tax advantages that make that are taxed every year Your financial advisor can help narrow. it easier to save for college The plans are In addition to federal tax breaks your down your choices and identify the 529. named after Section 529 of the Internal state may offer tax breaks such as a tax plan with the features that best fit your. Revenue Code the section of the code that deduction or credit for money you contrib financial objectives. in 1996 gave permission to states to offer ute to a 529 plan and an exemption from. savings plans exempt from federal taxa state income tax for qualified withdrawals Savings can be used nationwide from. tion It took a few years for the states to In some states though you may need to community colleges to Ivy League schools. create their plans but today 49 states and use your home state s 529 plan to claim the Regardless of which state s 529 plan you. Washington D C each offer at least one state tax breaks choose the money in your account can be. 529 college savings plan used at any eligible educational institution. You can choose almost any state s plan in the country Eligible institutions include. Tax advantages You can choose almost any state s 529 all accredited public and private colleges. Tax breaks and the edge they offer families plan regardless of where you live where universities vocational schools and other. saving for college are the main benefits of the beneficiary the student lives or where postsecondary educational institutions in. using a 529 plan Here s the deal the beneficiary will eventually attend col the United States They even include some. Investment earnings in a 529 plan grow lege and still be eligible for the federal educational institutions in other countries. free from taxes while you save and can be tax benefits associated with 529 plans that participate in the U S Department of. withdrawn free from federal taxes if used Only a few plans limit participation to state Education s student aid program. for qualified higher education expenses residents, Qualified expenses include college tuition The flexibility to choose nearly any state s Accounts can be opened by parents. fees books and if enrolled at least half 529 plan enables you to choose the plan with relatives and friends. time generally room and board the features that best suit you In addition Opening a 529 account is not limited to. Because your investment earnings are to reviewing plans from other states it is a just parents Grandparents relatives and. not taxed while you save all of your earn good idea to review your state s plan partic friends are all welcome to open accounts. ings remain available to potentially gener ularly if it offers residents special incentives provided they are age 18 or older and a U S. 6 FR2011 0506 0653 E,iStockphoto com Catherine Yeulet. Why use a 529 college savings plan,n Investment earnings grow tax free. n Withdrawals for qualified education expenses are exempt from federal taxes. Federal tax breaks, n Possible perks from your state for choosing its 529 plan. n Anyone can contribute no income restrictions may help your college. n You maintain control of the account not the student fund grow faster. n You can reclaim the funds in the account for yourself. n You can change the account s beneficiary,n Low impact on financial aid eligibility. n Assets are generally protected from creditors,FR2011 0506 0653 E 7. citizen or resident with a Social Security,iStockphoto com Miroslav Ferkuniak. number or a taxpayer identification number,Adults can even open 529 accounts for. themselves if they are planning to attend,Unlike some tax favored accounts there. are no income restrictions on who can open,a 529 account Even high income individu. als who stand to gain the most from feder,ally tax free investment earnings can open. and contribute to 529 accounts,You are welcome to open as many 529. accounts as you like If you want to open,accounts for each of your five grandchil. dren you go for it More than one account,can be set up for the same beneficiary so. no worries if someone else has already set,up accounts for your beneficiaries You can. still open your own accounts in the 529,plan of your choice. High maximum contribution limits,Each state sets its own limit on the maxi. Earnings in a 529 account are exempt mum amount that can be contributed on. from federal taxes and may be exempt behalf of a beneficiary Many states set. from state taxes if used for high limits of say 300 000 or more per. n tuition and fees beneficiary The limit applies to all of the. n books supplies and equipment accounts held in that state s 529 plan for. the beneficiary Once the limit is reached, n special needs services incurred by a special needs beneficiary. in connection with enrollment no more contributions can be made to that. n or room and board if enrolled at least half time state s plan for that beneficiary. While you have the freedom to contrib, at an eligible educational institution ute large amounts many 529 plans allow. including a you to contribute as little as 25 or 50 at. a time Low minimum contribution limits,like these enable you to move toward your. n university,savings goal by periodically investing. n vocational school,small amounts over time perhaps through. n or any other postsecondary educational institution eligible to. a payroll deduction plan or an automatic, participate in the Department of Education s student aid pro. gram This even includes some schools in other countries investment plan. The person who opens the account,controls the account. Opening a 529 account yourself rather,than simply contributing to an account. 8 FR2011 0506 0653 E, someone else has opened for your benefi equities more bonds as the beneficiary. ciary offers you a few benefits gets closer to college age Many families. The first benefit is control The person appreciate the convenience that age based 529 accounts. who opens a 529 account becomes the portfolios offer can be opened. account owner and maintains control of Static portfolios have asset allocations. by parents, the account As account owner you decide that do not change over time For example. how the funds in the account are invested a static portfolio invested in 60 equities grandparents. And you not the beneficiary control the and 40 bonds will remain fixed at that relatives and. timing and the amounts of the withdraw 60 40 allocation Static portfolios offer you friends. als which helps ensure that the savings are the ability to choose the asset allocation. used for the purpose you intended college you prefer rather than relying on an age. You can even change the beneficiary on the based portfolio to make the decision for. account a helpful option if your benefi you You can generally change your invest. ciary decides not to go to college ment choices once each calendar year en of your 529 account decides not to go to. Second most 529 plans allow account abling you to switch to more conservative college. owners to withdraw money at any time and portfolios as your beneficiary approaches First you can leave the money in the. for any purpose This feature may come in college age plan in case the beneficiary decides to go to. handy if you have a financial emergency or As with investing in general there are no college later Funds can generally remain. if you simply change your mind about the guarantees with a 529 plan Your returns invested in a 529 plan regardless of the. account and want to reclaim the money for will depend on how your chosen invest beneficiary s age In contrast all funds in a. yourself If a withdrawal is used for any ment portfolios perform It is possible to Coverdell education savings account gener. thing other than the beneficiary s qualified lose money investing including the princi ally must be withdrawn by the beneficiary s. higher education expenses you will have to pal you invested 30th birthday. pay tax and a 10 federal tax penalty on the Second you can change the beneficiary to. earnings portion of the withdrawal Plus if Your options if the beneficiary an eligible member of the beneficiary s fam. you received a tax deduction or credit from does not go to college ily This can include the beneficiary s child. your state you may need to repay those You have a few options if the beneficiary or descendent brother sister stepbrother or. Professionally managed investment,portfolios,States typically hire investment manage. ment companies such as mutual fund com,panies to design the investments in their. 529 plans and to provide account services,to the account owners. When you open a 529 account you will,typically have a choice of investment port. folios similar to mutual funds Depending,on the 529 plan you choose your invest. ment choices might include age based,portfolios static portfolios and perhaps. an FDIC insured banking option,Age based portfolios are linked to the. beneficiary s age and automatically shift, to a more conservative allocation fewer iStockphoto com Marcel Mooj. FR2011 0506 0653 E 9, stepsister father or mother or ancestor of ei year without your gifts being taxable And Assets in a 529 account are protected. ther stepfather or stepmother son or daugh if you are married and file a joint tax return from creditors. ter of a brother or sister brother or sister of a you and your spouse can jointly contribute up If you should ever file for bankruptcy. father or mother son in law daughter in law to 130 000 per beneficiary in a single year federal law generally protects the assets. father in law mother in law brother in law without your gifts being taxable in your 529 account from creditors as long. or sister in law the spouse of any individual Here s how this works If you contrib as the assets were contributed at least two. listed earlier or a first cousin ute more than the 13 000 annual gift tax years prior to the bankruptcy filing and. Third you can withdraw your savings exclusion to a 529 account in one year you the account s beneficiary is your child. as a non qualified distribution You will can elect on your tax return to treat up to stepchild grandchild or stepgrandchild. owe federal income tax a 10 federal tax 65 000 of your contribution as if it were Contributions up to 5 850 made between. penalty and perhaps state and local income made equally over a five year period This one and two years before the filing are also. taxes on the earnings portion but not on makes is possible for you to apply the annual generally protected Your state may also. the contributions portion of the withdraw exclusion to a portion of your contribution offer creditor protections. al Any state tax breaks you received may in each of the five years effectively shelter Creditor protection for 529 accounts is. need to be repaid ing up to 65 000 from the federal gift tax an important feature for everyone but it is. If you do not outlive the five year period a especially important for professionals such. Special gift tax advantage prorated portion of your contribution will be as doctors and attorneys who are vulnera. 529 plans offer a special federal gift tax added to your estate for estate tax purposes ble to lawsuits that may lead to bankruptcy. advantage that no other savings plans offer The ability to make a gift five times. Normally you can give up to 13 000 each to larger than normal in a single year without The beneficiary can be any age. any number of people in a single year without your gift being subject to gift tax or eating You can open a 529 account for a beneficia. your gifts being taxable With a 529 plan you into the amount your estate can exempt ry of any age from newborn to teenager. can contribute five times that amount up from estate taxes makes 529 plans an ef to adult and all the ages in between. to 65 000 per beneficiary in a single fective estate planning tool Starting to save while a child is still. 529 plans are a great estate planning tool, n You can contribute up to 65 000 per beneficiary in a single year without your. gift being taxable that s five times the normal annual gift tax exclusion. n Married couples can contribute up to 130 000 per beneficiary in a single year. n 529 plans are ideal for parents grandparents and friends who want to reduce. the size of their taxable estates today and help their loved ones attend college. in the future,iStockphoto com Yarinca,10 FR2011 0506 0653 E. iStockphoto com Marzanna Syncerz fabphoto,College will be here before you know it. Talk to your financial advisor today about creating. your personal college funding strategy, young helps you make the most of the pow earned an extra 13 000 because it had an ABOUT 529 COLLEGE SAVINGS PLANS. er of compound earnings This means the additional ten years to compound This is For more complete information about a. longer your contributions are invested the a hypothetical example and does not repre 529 college savings plan including invest. longer the earnings on those investments sent the returns of a specific investment ment objectives risks fees and expenses. have to potentially generate additional earn That said it is never too late to start sav associated with it please carefully read the. ings And the more earnings that are gener ing for college The key is to get started as issuer s official statement before investing. ated the less you may need to contribute to soon as you can It can be obtained from your financial ad. move toward your savings goal,visor Any state based benefit offered with. To illustrate the power of compound Talk to your financial advisor. respect to a particular 529 college savings, earnings let s look at two hypothetical Tax breaks Control over the account No. plan should be one of many appropriately, families who began contributing to 529 income restrictions High contribution lim. weighted factors to be considered in making, college savings plans at different times its It s easy to understand why 529 college. an investment decision You should consult, Family A contributed 10 000 when their savings plans are a smart start toward a. college education for so many families with your financial tax or other advisor to. daughter was born and Family B contrib, Talk to your financial advisor about learn more about how state based benefits. uted 10 000 when their son reached age 10, If both accounts earned 6 each year by whether 529 plans are a smart start in including any limitations would apply to. the time the children reached age 18 Family your circumstances Your advisor can help your specific circumstances You also may. A s account will have grown to 29 000 you determine the best way to help fund wish to contact your home state or any other. and Family B s account will have grown to a college education as well as integrate 529 college savings plan to learn more about. 16 000 Although both families invested your college funding goal with your other the features benefits and limitations of that. the same amount Family A s account financial goals and objectives n state s 529 college savings plan. FR2011 0506 0653 E 11,8 Potential Sources of Investment. Living off the interest and dividends from their investments without. touching the principal is an attractive concept for many investors Let s say. for illustrative purposes only that you need 100 000 a year in income and. have 2 million in investments Those investments need to earn at least 5. annually Back in the days when interest rates were above 5 certificates of. deposit CDs or Treasury securities alone could have met that income goal. But with 5 year CDs and Treasury notes paying out around 2 annually1. investors may want to look farther afield in their search for income Eight. potential sources of investment income are introduced here Of course their. investment returns are not guaranteed and all eight sources may not be. appropriate for you If you are in search of investment income please talk to. your financial advisor about an income strategy that suits your financial goals. and circumstances,12 FR2011 0506 0653 E,1 bonds 2 dividend paying. common stocks 3 preferred stocks, Most bonds offer investors a steady income Dividend paying common stocks offer the On your quest for income you may want to. stream with interest paid at a fixed rate and potential for income and long term growth consider preferred stocks a type of stock. on a fixed schedule typically every six of capital that generally offers higher yields than. months until the bonds mature at which Companies that pay dividends not all common stock. time their face value is generally repaid to do tend to be mature companies that Like common stock preferred stock. investors Steady income and repayment of believe that they can better reward and retain represents partial ownership in a company. principal at maturity it s easy to see why shareholders by paying them a portion of the But while common stockholders have voting. bonds are a popular source of investment company s net earnings rather than reinvest rights preferred stockholders generally do. income particularly for investors determined ing all of their earnings in growing the busi not However preferred stocks have priority. to preserve the capital they have invested ness Companies that pay dividends include over common stocks but not bonds when. As with all investments investing in established corporations such as Exxon it comes to dividends A company must pay. bonds involves risk And in general the Mobil Coca Cola and Microsoft Having dividends to preferred stockholders before it. lower the risk the lower the returns For ex paid dividends in the past is no guarantee that pays dividends to common stockholders. ample U S Treasury securities commonly a company will pay dividends in the future Preferred stocks pay dividends at a. considered to be the safest securities due to Cash dividends are typically paid on a specified rate usually stated as a fixed per. the backing of the U S government2 offer quarterly basis creating an income stream centage of the stock s par value its initial. some of the lowest returns Other types of for investors The stream though is not price For example a 6 preferred share. bonds such as corporate bonds municipal necessarily as steady as that paid by bonds with a par value of 100 is expected to pay. bonds and mortgage and asset backed with their fixed interest rates Dividends dividends of 6 per share per year Sounds. securities generally involve a greater degree can fluctuate and can even be suspended by a bit like a bond huh Unlike bonds. of risk and offer the potential for greater the company The upside to a fluctuating though a company with financial problems. returns Your financial advisor can help you dividend is that it offers the potential for may suspend dividend payments to owners. determine which bonds are appropriate for rising dividends A dividend that increases of preferred stock If you own cumulative. your financial objectives and risk tolerance over time can help an investor s income shares and the company later resumes pay. Your tax bracket may even come into play in keep pace with inflation something a fixed ing dividends you will receive any skipped. choosing bonds While the interest from most interest payment from a bond cannot do dividends Non cumulative shares will. bonds is taxed as ordinary income the interest Dividend paying common stocks also not receive skipped dividends. from most municipal bonds is exempt from offer a greater potential for price apprecia Many preferred stocks are callable. federal taxes and may be exempt from state tion than bonds meaning that the company has the option. and local taxes if the bonds were issued in your Some dividends those known as quali to buy back or call shares on or after. state The higher your tax bracket the more fied dividends receive more favorable tax a specified date Companies tend to call. you stand to benefit from tax exempt interest treatment than the interest from taxable shares after interest rates have declined so. The interest from U S Treasury securities is bonds Qualified dividends are taxed at 15 that they can issue new shares at a lower. iStockphoto com p12 Alex Potemkin p13 imagedepotpro. exempt from state and local taxes a benefit 0 for taxpayers in the lowest two tax brack interest rate If your shares are called you. for residents of states with high income taxes ets through 2012 while the interest from will be reinvesting in a lower interest rate. Bond prices are sensitive to changes taxable bonds is taxed as ordinary income environment. in interest rates When interest rates rise If you are looking for income and potential You can learn about a specific preferred. bond prices fall and vice versa The impact growth consider investing in the common stock such as whether it is cumulative or. on prices is more pronounced for longer stock of dividend paying companies as well as non cumulative callable or non callable. term bonds the mutual funds and ETFs that focus on them in the stock s prospectus. FR2011 0506 0653 E 13,4 certificates,of deposit 5 royalty trusts 6 master limited. partnerships, CDs offer interest income and a way to Royalty trusts are an avenue to explore when Master limited partnerships MLPs offer. preserve principal provided they are held looking for income paying investments investors potential income and the tax. to maturity They can be purchased directly Royalty trusts own royalty or net profits benefits of a partnership. from a bank or though a brokerage account interests in oil gas and other natural MLPs are centered on the energy indus. When purchased directly from a bank resource properties and distribute nearly try but unlike royalty trusts whose income. CDs generally offer a fixed rate of interest all of their income to their investors The payouts come from the production of oil gas. to be paid when the CD matures which trusts themselves are not engaged in the and other natural resources MLPs typically. might be anywhere from 3 months to 5 actual production of oil or gas They simply focus on transporting and storing those natu. years out There may be a penalty if cash is collect the royalty income from the produc ral resources For example an MLP may own. withdrawn before the CD matures For this ing properties and distribute the income to and operate natural gas pipelines and storage. reason investors often purchase an array of the holders of trust units facilities for petroleum products and coal. CDs with staggered maturity dates so that By paying out nearly all of their income to When you invest in an MLP you receive. they have frequent access to at least some investors royalty trusts offer the potential for partnership units and are considered a. of their money without penalty above average yields The yields can change limited partner While you do not have a say. Brokered CDs also usually pay a fixed quickly though Because distributions from in the running of the partnership you are en. rate of interest CDs with terms of one year a royalty trust are dependent on the prices titled to receive a portion of its available cash. or less typically pay interest at maturity received from the sale of natural resources flow each quarter The actual running of the. while CDs with longer terms usually make oil gas and the like whose prices can partnership is handled by the general partner. interest payments on a semiannual basis fluctuate widely the distributions from a Income distributed by MLPs avoids. helpful if you need a stream of income for royalty trust can also fluctuate widely corporate income tax and is taxable to the. your current expenses Royalty trust unitholders also need to partners who report a pro rata portion of the. If you need cash before your brokered CD consider that one day and that day may not partnership s income and expenses on their. matures you may be able to sell it in the arrive for decades or it may arrive in a just tax returns Partners may also have to file tax. secondary market Depending on market a few years the income payments will dry returns in the state s where the MLP operates. conditions the price you receive may be up as the natural resources are depleted Before you invest consider consulting your tax. higher or lower than your original purchase For this reason investors in royalty trusts advisor about the tax implications of an MLP. price Like bonds CD prices move in the are generally allowed to claim depletion MLP distributions which generally rely on. opposite direction of interest rates For deductions to help recover their investment fee income tend to be more stable than royalty. example if interest rates have risen since Income distributed by a royalty trust trust distributions which typically fluctuate. you purchased your brokered CD the CD s avoids corporate income tax and is taxable with the price of oil gas and other natural. price must fall in order for it to be attrac to the investors who report a pro rata por resources MLP distributions are not without. tive to new investors tion of the trust s income and expenses on risk though For example changes in regula. Both types of CDs are FDIC insured up their tax returns Investors may also have tions regarding pipelines and storage facilities. to the limit allowed by law The FDIC in to file tax returns in the state s where the may adversely affect an MLP s profitability. surance however does not protect against royalties were generated Before you invest Also the business of transporting and storing. a market loss incurred by selling a brokered consider consulting your tax advisor about natural resources is inherently hazardous an. CD before maturity the tax implications of a royalty trust accident could result in financial losses. 14 FR2011 0506 0653 E,7 real estate,8 immediate For more information on. investment trusts annuities income paying investments. please consult your financial, The potential for investment income and Investors looking for an income stream. advisor today Your advisor can, portfolio diversification attracts investors guaranteed to last a lifetime will need to. help you determine which types, to real estate investment trusts REITs look beyond stocks and bonds partnerships. of investments may best suit, REITs generally own and manage in and trusts to immediate annuities. your investment needs, come producing real estate such as office An immediate annuity is a contract be. buildings shopping centers and apartment tween you and an insurance company that. buildings Some REITs known as mort guarantees you an income for life or for a PLEASE NOTE. gage REITs focus on financing real estate specified number of years in return for your 1 In March 2011 the interest rate on a 5 year U S. REITs have the potential to offer a high lump sum premium payment The guaran Treasury note was 2 25 The average APY on a. level of income due in part to the fact that tee is subject to the claims paying ability of 5 year certificate of deposit was 1 71. APY source bankrate com, they must distribute 90 of their taxable the issuing insurance company. 2 The government backing of U S Treasury securi, income to their shareholders each year Depending on the type of annuity you. ties pertains to the timely payment of interest, Plus REITs generally do not pay corpo choose your income payments may be and principal and does not eliminate market risk. rate taxes on the portion of their taxable fixed inflation adjusted or linked to the. Before investing in mutual funds or ETFs investors. income that is distributed to shareholders performance of investments you choose should consider a fund s investment objectives. which leaves more funds available for the Fixed annuities pay a fixed amount each risks charges and expenses Contact your fi. payment of dividends As a result REITs period regardless of how the markets per nancial advisor for a prospectus containing this in. have the potential to pay larger dividends form The upside of a fixed annuity is that formation Please read it carefully before investing. than corporations that must pay taxes on you know right from the start how much to Before purchasing a variable annuity please. their taxable income and that have the expect each period The downside is that obtain a prospectus from your financial advisor. and read it carefully The prospectus contains, freedom to plow their income back into fixed payments are vulnerable to inflation. important information about the annuity and, their businesses Keep in mind though the meaning that they will lose purchasing its investment portfolios including investment. dividends from REITs will fluctuate and power over time To help protect a fixed objectives risks charges and expenses Variable. are not guaranteed annuity from inflation consider adding an annuities are long term investments and are. You can invest in REITs by purchasing inflation adjustment option that increases subject to market risk including the possible. loss of principal, shares of publicly traded REITs just as you the annuity payments by a specified per. would any stock or you can buy shares of centage each year Asset allocation and diversification do not ensure a. profit or protect against loss in declining markets. mutual funds or exchange traded funds Variable annuities offer you the potential. that focus on REITs Non publicly traded for higher long term returns in exchange There are special risks of investing in Limited. iStockphoto com p14 Paul Fleet p15 Tuen van der Dries Alex Potemkin. Partnerships and REITS such as lack of liquid, R EITs may be an option but involve spe for you assuming a degree of market risk. ity and potential adverse economics and, cial risks such as a lack of liquidity With a variable annuity you choose how regulatory changes For this reason there are. REIT dividends are not qualified so your premium is invested Your income minimum suitability standards that must be. you will pay ordinary income taxes on most payments will fluctuate based on how your met Please ensure you read the prospectus. REIT distributions Holding REITs in a tax investments perform carefully before investing In addition an invest. ment in real estate will fluctuate with the value, deferred account such as an IRA or a 401 k Immediate annuities are generally pur. of the underlying properties and that the price, plan allows the tax to be deferred until the chased at or after retirement using part of at redemption may be more or less than the. money is withdrawn from the account the savings from a retirement account n original price paid.