Self Employed? Best Ways to Save for Retirement (Fidelity)

Saving for the self-employed
BY SARAH MAX,
— 03/24/11

Run your own business? Here’s help choosing the right retirement saving strategy for you.
Whether out of choice or necessity, the ranks of the self-employed are growing.

No matter what you call them—independent consultants, contract employees, entrepreneurs or just plain freelancers—self-employed people account for more than a quarter of those working in the U.S., according to a 2010 survey by Kelly Services, a human resources consulting firm, up from 19% three years earlier. While the trend was fueled by the recession, workplace experts say it's here to stay.

Working for yourself can mean more flexibility, greater job satisfaction and the potential for a bigger paycheck. What it doesn't offer is a neatly packaged bundle of benefits. That means the burden for saving for retirement falls solely on you.

There are plenty of options
The good news: There are ample opportunities for self-employed savers to sock away tax-deferred money. In fact, you have the potential to save even more on your own than you would working for someone else, says Brian Hogan, director of retirement product management for Fidelity Investments.


Before you dive headfirst into choosing a retirement account, though, make sure you've addressed such things as lining up health insurance and building your cash reserves. “You don't want to lock money in a retirement plan only to have to pull it out,” says Bill Losey, a certified financial planner in Wilton, N.Y.

Next, give some thought to your business. Do you have employees? Will you have some next year? And what sort of retirement benefits, if any, do you plan to offer? Some plans put the burden of saving for your employees’ retirement on you, the business owner, says Hogan.

The issue is complex, and can add a layer of administrative headaches. So it’s a good idea to talk with your tax adviser. The primer below outlines the key advantages and caveats of the various options for self-employed savers. Don't drag your feet though. Just because you don't punch in doesn't mean the retirement clock has stopped ticking.

SEP IRA
Available to self-employed workers and small businesses, the Simplified Employee Pension plan, or SEP, is essentially an IRA with bigger contribution limits. How big? For the 2010 and 2011 tax years, you can contribute up to 25% of your compensation up to a maximum of $49,000.

That limit is significantly higher than the $16,500 you could sock away in a company 401(k). “For ease of use, this is my favorite plan,” says Losey. “It's easy to open, there are no annual reporting requirements and you can adjust your contributions as you see fit.”

Advantage: You have until your tax-filing deadline to establish the account and make contributions, and you aren't obligated to make regular contributions to your account or your employees' accounts. For 2010, that means you can still set up a plan and make a deductible contribution by April 18; if you file an extension you may have until Oct. 15.

Caveat: If employees are in the picture, they can't make contributions to the plan, but you can contribute money on their behalf.

Solo 401(k)
A relative newcomer, the solo or self-employed 401(k) became available in 2002 and resembles the employer 401(k) plans most people know and love.

“Because of its familiarity, more people are leaning toward these plans,” says Cheryl Costa, a certified financial planner with AFW Advisors in Natick, Mass. You can contribute 100% of your compensation up to $16,500 ($22,000 if you're over 50) plus 25% of your compensation through profit-sharing for a maximum grand total of $49,000 a year.


Moreover, some plans allow participants to opt for Roth contributions, in which case they pay taxes now for the potential to save taxes later. Whether or not you go this route depends on many factors but it's worth a look. “Chances are you already have plenty of deductions as a self-employed person or business owner,” says Jerry Cannizzaro with Retirement Planning Services Inc. in Oakton, Va.

Advantage: The maximum allowed is the same as a SEP. But if your adjusted earned income is $82,500 or less, you'll be able to save more in a solo 401(k) than in a SEP, where contribution limits are tied to income and don't include profit-sharing. “If you have excess cash flow a solo 401(k) may be the way to go,” says Losey.

Caveat: If you have full-time employees you need not apply; plans are only available to self-employed individuals or companies with no employees other than spouses. Unlike the SEP, the plans do have annual reporting requirements.

Simple IRA
Available to self-employed workers and businesses with 100 employees or fewer, the plans are as easy to set up as the name suggests. The differences between a SEP and Simple IRA show up if you have employees. Unlike a SEP, where only employers can make contributions on behalf of their employees, these plans let employees save up to $11,500 ($14,000 if 50 and older) toward their retirement.

They also allow employers to make matching contributions of up to 3% of compensation or contribute up to 2% of each employee's salary, up to $4,900. If you are a self-employed individual or owner of the company you can effectively match your own savings. But if you match your own savings you'll be required to do the same for your employees. And once you start making contributions, says Costa, you may be required by law to continue with that match.

Advantage: If you have employees, a Simple IRA allows them to make their own contributions to the plan.

Caveat: Contribution limits are significantly lower than those for the SEP or the solo 401(k).

Keogh
Introduced in the 1960s as the original self-employed retirement plan, Keoghs went out of vogue with the introduction of the three plans mentioned earlier. These days the term Keogh generally is used to describe two other types of individual retirement plans, profit-sharing plans and defined-benefit plans. Both can be a hassle to set up and to maintain, requiring a plan document and annual report.

With profit-sharing plans, which are based on a percentage of income and capped at $49,000, it's probably not worth it. But if you're looking to play catch-up for retirement and have the cash to invest, a defined-benefit plan may be worth checking out, says Costa. The reason: You can put up to $195,000 a year in a defined-benefit plan — but your actual contribution is based on an annual actuarial calculation that takes into account things like your income, years to retirement and projected returns.

Advantage: Potentially huge — up to $195,000 — in contribution limits.

© 2008-2011 Fidelity Interactive Content Services LLC. All rights reserved.

Smart Grid Technology (Business Week)

Smart Grid Technology October 5, 2009, 8:18PM EST The Coming Energy Revolution
Smart-grid technology will bring huge savings to companies as varied as Cisco, PG&E, and Cargill, and to consumers, too. But who will foot the bill?
By Rachael King

Food producer Cargill is taking a carving knife to its electricity bills. At a plant in Springdale, Ark., where the company handles about 50,000 turkeys a day, electricity bills run more than $2 million a year. But Cargill thinks it can cleave $680,000 from the total by using its own generators on high-demand days.

The secret behind this money-saving plan lies in what's known as the smart grid—a wholesale revamp of the system that distributes energy to homes and businesses around the country. Government bodies and utility providers are in the early stages of this multibillion-dollar upgrade to transform the existing grid into a two-way network where power and information flow in both directions between the utility and the customer, not just from the provider to the user.

Done right, the revamp will cut bills, reduce consumption, give users more say in the kinds of energy they use, and even let customers produce their own energy and sell it back to power providers. "What's going to happen with the smart grid is that we're going to create a network that's larger than the Internet," says Guido Jouret, chief technology officer for the emerging-technologies group at Cisco Systems (CSCO), one of the many companies working on the technology needed to modernize the electric grid.

A $20 Billion Market in Five Years
The Electric Power Research Institute, a nonprofit research and design group, estimates that it will cost $165 billion, or roughly $8 billion a year for 20 years, to create the smart grid. The market for the gear needed to overhaul smart-grid communications alone may reach $20 billion a year in five years, Cisco estimates. Other technology companies developing smart-grid software and hardware include IBM (IBM), Oracle (ORCL), Google (GOOG), and Siemens (SI).

The tech sector's interest is fitting considering the similarities between the energy-grid upgrade and the computing revolution of the 1980s that saw hulking, centralized mainframes give way to PCs. The existing U.S. power grid dispenses electricity but is limited in its ability to gather intelligence from end users—hence the monthly visit from a meter reader. Now utilities are replacing outmoded meters with so-called smart meters that foster a back-and-forth between customer and utility. In much the same way PCs opened the door to third-party software and services and use of the Internet, smart meters are paving the way for tools and services that make the system more responsive to shifts in energy demands.

Cargill is counting on smart-grid tech to lower its bills. Many utility vendors set rates for industrial customers based on peak-use patterns. So in a common practice known as peak-shaving, Cargill taps its own generators to keep its 365,000-square-foot Springdale plant cool on summer's hottest days rather than use energy from its electricity vendor, PowerSecure (POWR). The challenge is determining when peaks occur. PowerSecure keeps close tabs on Cargill's generators, as well as fluctuating electricity prices, and when it can tell that rates are on course to pass certain preset thresholds, it fires up Cargill's generators remotely.

Easier to Opt for Solar or Wind
In the future, Cargill may choose to run its generators more often and sell power back to the utility when prices are high, says PowerSecure CEO Sidney Hinton. While Cargill's utility provider doesn't currently purchase energy generated by customers, other utilities, including PG&E (PCG) in California, have begun buying solar energy generated by customers on corporate campuses and residential rooftops.

Another benefit is that customers may soon get more leeway in determining the nature of the power they purchase, more easily opting for renewable energies such as solar and wind, says Matthew Trevithick, a partner at venture capital firm Venrock. Companies that are actively trying to cut their carbon footprints, such as Coca-Cola (KO), may be able to specify the percentage of renewable energy they buy, opting to pay more for wind, for example, if it helps them meet go-green targets.

But questions abound over who will foot the bill for the grid's modernization. The American Recovery & Reinvestment Act has allocated $4.5 billion in grants and loans through the Energy Dept. for the smart grid to enhance security and to ensure reliability of the electric grid to meet growing demand.

What of the remaining costs? Often, capital improvement expenses are passed along to customers. Before that, though, utilities need a green light from state regulators. "Certain states will go first because of cost," says David Leeds, an analyst specializing in the smart grid for Greentech Media. For instance, he says that in California, electricity costs 15¢ per kilowatt hour, compared with about 5¢ in Georgia.

Discounts for Lower Peak Usage
California utilities are leading the way in smart-meter installation. Northern California's PG&E is the leader, spending $2.2 billion to deploy 5.4 million smart meters, according to a Greentech Media report. Southern California Edison is No. 3, spending $1.63 billion on 4.8 million smart meters. (Columbus (Ohio)-based American Electric Power (AEP), with a goal of installing 5 million meters, lands between the two California utilities.)

Utilities stand to benefit from smarter-grid technology, too—particularly during high-demand periods. When demand for electricity exceeds supply, such as on hot summer days when air conditioners are running, utilities must find additional power or potentially face blackouts. Some are forced to tap expensive, natural gas-burning power plants that are kept for just such a purpose. Alternatively, utilities can buy power on demand from the spot market. The problem in either scenario is that rates charged for electricity remain constant even when the cost of supplying it can surge. As a result, utilities may lose money on hot days even though consumers are using more power.

Many utilities have encouraged consumers to voluntarily engage in energy efficiency, but changing consumer behavior can be challenging. For example, Southern California Edison has used the slogan "Give your appliances the afternoon off" for decades to try to get customers to reduce the strain on the grid from 2 p.m. to 7 p.m., when millions of customers turn on large appliances such as clothes washers and dishwashers. While energy-efficiency programs have helped reduce consumption, the utility stands to make even bigger gains with the installation of smart meters.

Plants Can Keep Going During Storms
But as information on usage is extended further to the residence or business, customers will be able to see just how much energy their lighting, air conditioning, and appliances use. "The idea is that electricity costs more at peak-demand times, so if you showed those pricing signals to people, they can choose to shift usage to off-peak times," says Jeffrey Taft, global smart-grid chief architect at Accenture (ACN). The smart grid will also give utilities the ability to automatically turn down business and consumer appliances on peak days. Customers would probably be given some sort of discount in exchange for letting the utility cut power to certain systems at key times of the day.

In Springdale, Ark., the local utility once faced a high-demand day and called and asked Cargill to fire up its generators and separate from the grid—and paid the company to do so. "In the long run it netted out a lower cost for us," says Cargill Engineering Manager Jim Edwards. Those generators have come in handy at other times, too. When there was a big ice storm in Northwest Arkansas this past winter, Cargill ran the generators for six days straight to keep producing turkey meat. "We were the only facility in this area to continue processing products," says Edwards. "If the plant had been closed for those six days, it would have lost about $1.2 million."

King is a writer for BusinessWeek.com in San Francisco.

Part Time Work In Retirement (AARP)

5 More Great Part-time Jobs for Retirees
Blogging, coaching or teaching provide opportunities for income with flexible schedules

by: Kerry Hannon | from: AARP | March 2, 2011

Just recently, relatively few retirees took on part-time jobs. Today, the majority of retirees are working as a way to stay engaged, support a lifestyle or both.

For Jose and Jill Ferrer, ages 61 and 56, respectively, it's the whole ball of wax. When they retired from telecommunications careers that spanned nearly three decades at AT&T, they sold their townhouse in Randolph, N.J., for about $360,000 and hit the road.

Since 2005, they've traveled full time from Oregon to New Mexico to Florida and points in between at the wheel of their 40-foot Country Coach Allure motor home (paid for with cash). A Harley-Davidson Heritage Softail motorcycle, a Saturn car and two bikes are along for the ride.


"We're living a lifestyle that enables us to move around as we choose," says Jill. "We usually take our time — spending at least a few days and more likely a week or more in an area. We fully intend to get to all of the national parks."

The couple planned carefully for their retirement. They lived off one of their $100,000-a-year salaries for about five years before retiring and saving the other one. They contributed the maximum to their 401(k) plans and rolled them over into individual retirement accounts once they retired. And they expect to start taking Social Security when they're eligible. "We're hopeful that we have saved enough to last us in a retirement that includes frugal living and part-time work," Jill explains.

For the road warrior couple, that part-time work is a website and blog dedicated to the RV Lifestyle. "We were seeking something we could do on the road to make some extra income. We created Your RV Lifestyle as a site where we could share tips, lessons learned and travel experiences," she says.

And it has worked. With both a laptop and a desktop in the motor home, they use a wireless data plan with an air card for Internet access. On average, they try to do something on the site every day: a blog, a new page or an updated page.

The payoff: They earn a small commission on products sold through the product-affiliate programs related to the RV lifestyle, such as Good Sam RV club, FMCA, RV books/DVDs and so on, that are promoted on the site. They also get a cut when visitors click on Google Adsense ads displayed on the relevant pages.

"For now, as we balance various aspects of our life, we are happy to earn a little extra money — about $700 a month — from the site," Jill says. "And we know the potential is there to grow our website business further."

Whatever your reason for wanting to keep earning income, it doesn't mean you're locked into the daily treadmill. Opting to work a slimmed down number of hours a week gives you plenty of room to travel, enjoy your hobbies, spend time with friends and more.

Here are five great part-time jobs to consider. Pay ranges, which will vary based on factors such as experience and geography, are derived from data from the U.S. Department of Labor.

1. Blogger

The nitty-gritty: Most bloggers are making very little per month. Little wonder. There's lots of competition out there for eyeballs. An estimated 126 million blogs were up and running on the Internet in 2009, the most recent figure available, according to Pingdom.com, which tracks Internet growth. It is possible, though, to break through. An income stream comes from steadily building a following through referrals and generating income from the ads on your page. You can also make money by selling merchandise directly — from books to T-shirts. Developing traffic flow (and money) to your blog is time-consuming. You can't just come up with a few pithy posts on a whim every so often and expect visitors to show up with any consistency. It takes discipline. Use Facebook and Twitter to get the word out.

The hours: Flexible. It's tough to measure how long it takes someone to write a post of around 800 words. It might take three or four hours. The real money-hungry bloggers log in full-time schedules of 40 hours or more a week managing their blogs. While that's heavy duty, you should plan to blog at least three times a week. You also need to keep tabs on the business side — managing display ads and product sales adds up to a few hours a week.

Median pay range: The majority of bloggers make less than $100 a month from their sites. Some bloggers produce more than one blog, which antes up income. There are bloggers who pull in more than $100,000, but they're the exception. Google AdSense, Amazon's affiliate program and Chitika are three income streams to check out. How much income they produce varies by blog. The key is to try out a few.

Qualifications: At the heart of it — passion, a micro-niche that you really know something about, decent writing skills and the commitment to keep feeding your site with fresh content. A successful blog is built on subject matter that's valuable to people interested in the precise topic. Computer skills are a must and knowing how to post photos and YouTube clips is helpful. You have an edge if you know how to use keywords and other online links to lure people to your website via search engine results such as Google, Bing and Yahoo. If you're interested, start with ProBlogger.net. File this under labor of love.



2. Athletic Coach/Umpire/Referee

The nitty-gritty: This one's for the kid in all of us. Check into a coach, referee, umpire or scorekeeper post in high school programs, or various youth and amateur leagues. Stress and plenty of time standing go with the territory. And for outdoor sports, prepare for the elements. Travel is usually part of the job, but it's probably a scoot across town. If you're blowing a whistle, you better brace yourself for the possibility of verbal strip downs (parental ire).

The hours: These fluctuate widely by sport and organization. Coaches can figure three hours or so for late afternoons, five days a week; plus weekend days in season. Umpires, referees and scorekeepers usually work two to three hours per game. Figure on once a week for two or three games in an afternoon or evening.

Median pay range: For a coaching position at a school, $3,000 to $5,000 per season is possible. Umpires and referees can make $30 to $50 per game. Independent leagues or private travel teams might pay $50 to $75 per game.

Qualifications: You need to be good with children, possess moderate physical fitness and have an overall knowledge of the game. Specific education, training and licensing requirements for coaches and officials vary greatly by the level and type of sport. Some entry-level positions for coaches require only experience gleaned as a participant in the sport. Umpires and referees usually are required to attend a training course and pass a test. You can gain experience by volunteering for intramural, community and recreational league competitions. If you have a hankering to umpire, check out your local umpire association. For American Legion (high school age), you will need to contact your local division and attend a certifying clinic. There are one-day refresher classes and full courses with several sessions, plus an exam. Some leagues require that certification be renewed periodically. Estimated Cost: $50 application, plus $7.50 for a rule book, $5 for a flipping coin. You may need to pass a background check and applicable drug tests. Additional resources: National Association of Sports Officials and State Association Referees. Look to your local high schools, parks departments, recreational and church leagues, and soccer clubs for openings. Ask if they offer a club-certified referee or umpire class. For soccer, you might need FIFA certification.




3. Teacher's Aide

The nitty-gritty: Kid-central. This post can take some nerves of steel and patience, but the rewards are plentiful. It can be frustrating for some aides to have to defer to the guidance of the teacher in charge, so you need to have a good rapport and working relationship. The teacher needs to respect and value what you bring to the classroom. If not, it's a bust. Be prepared for some grunt work — clerical duties such as grading papers, recording grades, setting up equipment, entering computer data. One of the best aspects is one-on-one tutoring for a student who needs special help, or has a disability that requires individual attention. These are bonding moments of giving back that are worth more than a paycheck. While some of the school day is spent standing, walking or kneeling, most of it is sitting while working with students. Teacher assistants also supervise students in the cafeteria, school yard and hallways, or on field trips.

The hours: Three to five days a week, six to seven hours per day during the traditional school year (eight to nine months). Summer school hours may be available in some districts.

Median full-time pay range: Annual wage: $15,870 to $35,350.

Qualifications: On-the-job training combined with a high school diploma. Some states or school districts may require additional education beyond high school. A college degree, related coursework in child development and previous experience helping special education students can open up job opportunities. Self-starters who can multitask and work independently are highly valued. Fluency in a second language, especially Spanish, is in demand. Many schools require previous experience in working with children and a valid driver's license. Most require you to pass a background check. For more information, go to American Federation of Teachers, National Education Association, and National Resource Center for Paraprofessionals.

The promise: Gold Stars.




4. Tour Jobs

The nitty-gritty: Imagine steering a group of curious tourists around historical monuments in Washington, D.C., on a sunny, cherry blossom-bright day in April. That's particularly true if you're a history buff and have a knack for storytelling and showmanship. You need to have a mind for remembering dates and historical facts. You also must interact easily with everyone — from excitable school kids on a field trip to seniors hailing from all over the globe. Tour guide jobs pop up in various places that attract visitors. You might lead visitors through points of historical or local interest, pretzel factories, wineries, breweries and more, doling out tidbits of information in a narrative format. The downside is that it can be hard on the feet and the vocal cords, and the patter can become stifling rote. Your job is to dig down for a fresh and energetic performance each round. Many of these jobs are walking tours, although you may land one where you drive a vehicle, or go with a group on a park shuttle or monorail system. Depending on the assignment, you might have to stand up to eight hours per day or walk and climb stairs. Plus, you'll need to be sharp-eyed to visually monitor guests to ensure compliance with security and safety rules. Less demanding openings, such as ticket-takers, program sellers or cashiers, are also generally available.

The hours: Varying schedules including days, evenings and weekends. It might be difficult to receive time off around peak tourist times, such as holidays and school vacations.

Median pay range: Hourly wage: $7.72 to $18.87.

Qualifications: Tour guides often receive on-the-job training from employers. The academic background required for a position varies according to the venue. Best skill: The ability to hang on to historical facts, dates and anecdotes and relate that information to visitors in a compelling way. Some cities require licensing, and applicants may have to pass a written exam covering factual knowledge of specific locations and city history. Some community colleges offer short-term courses in tour and travel-related occupations. Certified Tour Professional (CTP) certification is offered through the National Tour Association.

Your hidden gem: Knowing where George Washington really slept.


5. Convention Center Jobs

The nitty-gritty: Convention centers in major cities can be wellsprings for a wide range of part-time jobs with various skill requirements. The panoply of shows rolls in and rolls out. Set 'em up and tear 'em down. Each week, the venues play host to various industry events from exotic food to car and boat shows, as well as concerts and even sports competitions. The demand for workers is a moving target — the perfect scenario if you're looking for the occasional paycheck. Some part-time jobs include nurse, parking lot attendant, parking lot cashier, set-up worker/cleaner, usher and information booth attendant. Many of these jobs have little to no physical labor. There are also food service opportunities for banquets and special dining events. The center's kitchen facility often hires line cooks and servers on an as-needed basis. In some towns, outside vendors will lease space inside a convention center and staff-up for each event. These positions can range from being a barista for a coffee stand to working at a concession stand. Sign on with one of these businesses, and the vendor will call and ask your availability depending on weekly needs.

The hours: The work schedules are irregular and no minimum number of hours is guaranteed. Work is typically available on all days of the year, including holidays. Evening and night hours may be required depending on the job.

Median pay range: Typically $10 to $20 an hour.

Qualifications: This is showtime. It's all about the customer, so people skills matter. Working knowledge of the event industry — including trade shows, conventions, consumer shows, concerts, athletic events and meetings — is a plus for some positions. Pre-employment drug screening and background checks are common. Many convention centers outsource their personnel management to companies that specialize in doing this for large convention and event centers, and hire locals to come in and do specific jobs for individual events. You might stop by at an event and ask booth operators about future openings. Your local convention, sports and entertainment agency should be able to provide employment information. Other job hunting sources: Tap into Convention.net or event management companies such as SMG World, a firm that manages convention centers, exhibition halls and trade centers, arenas, stadiums, performing arts centers, theaters and specific-use venues such as equestrian centers.


Kerry Hannon is a contributing editor for U.S. News & World Report and the author of What's Next? Follow Your Passion and Find Your Dream Job.

Taking Social Security While Working (from Smart Money)

Retirement by Robert Powell (Author Archive)
How to Collect Social Security and Keep Working


BOSTON ( MarketWatch ) — When it comes to retirement, the average American age 65 and older generates nearly two-thirds of their total income from a combination of earned income and Social Security, with the rest coming from pensions and personal assets.

But despite the fact that millions are earning income and collecting at the same time, there's still plenty of confusion over how Uncle Sam goes about taxing and reducing Social Security benefits for workers. Consider, for instance, some of the reasons why it can be confusing:

First, if you retire before the normal retirement age and start collecting Social Security benefits early, your benefits are reduced not only for starting early, but also as your earnings rise. In fact, if you work and collect before the so-called full retirement age, you'll lose $1 of Social Security benefit for every $2 earned over $14,160 in 2011.

Second, in the year that you reach full retirement age, your benefits are reduced $1 for every $3 earned over $37,680 in 2011, or least that's the case until the month you reach full retirement age.

Finally, once you're at full retirement age, your benefits are not reduced, but as much as 85% of the benefits could be taxed if your income is above a certain amount.

According to the Social Security website, if you file a federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $34,000, up to 85% of your benefits may be taxable. If you file a joint return, and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $44,000, up to 85% of your benefits may be taxable. If you are married and file a separate tax return, you probably will pay taxes on your benefits.

Even though all this might be confusing, there are some ways to increase your after-tax income from all your sources of income — be it earned income, Social Security, dividends, interest income, capital gains, pension income and the like. What's more, there are some ways to think differently about the interaction between earned income and Social Security benefits.

At a recent MarketWatch roundtable discussion, two of the nations' top retirement-planning experts offered tactics to consider to when deciding whether and how much to work in retirement, as well as whether and when to start taking Social Security benefits.

Never a net negative to work and to collect

"I find there are a lot of myths and misconceptions out there about what it means to have earned income still in retirement, and what the tax implications are," said Michael Kitces, who is the editor and publisher of The Kitces Report as well as director of research at Pinnacle Advisory Group. "And frankly, I've never seen a situation where there was actually a net loss for working. There are a lot of folks who have this idea of 'I can't work in retirement because it may make my taxes go up and I may have more of my Social Security taxed or I may have to impact IRAs or do something else, so maybe I won't work.'"

And so the first thing that you have to realize, according to Kitces, is that you never get a net negative for working and collecting Social Security. "If you work and you bring additional earned income into the household, there is more money there," he said. "You don't get to keep all of it, Uncle Sam will take a piece, and you may impact a couple other parts of the retirement pie as well, but it's never a net negative."

Elaine Floyd, Certified Financial Planner®, director of retirement and financial life planning at Horsesmouth, and author of "135 Social Security Questions Answered: What Savvy Advisors Need to Know, as well as The Financial Advisor's Guide to Savvy Social Security Planning," agreed.

"It always pays to work," said Floyd. "People are under the impression that if they earn more than $14,160 a year that they're going to be penalized. Well, it's really important, when you get into your 60s, to understand what the earnings test really is."

For starters, if you're over full retirement age, there is no earnings test, Floyd said. The earnings test comes into play only if you apply for Social Security before you turn full retirement age. And for those who have to deal with the earnings test, where for every two dollars you make over $14,160, one dollar of your Social Security will be withheld, it's important to understand what happens to that amount that's withheld, she said.

"Some people have heard that you get it back," she said. "You don't really get it back. You do, however, get a credit, and it's important to understand that credit for the actuarial reduction."

Floyd used this example during the roundtable discussion: If you start Social Security at 62, she said, you'll get 75% of your primary insurance amount and get a 25% reduction. "So let's say you get a job and you receive one Social Security check and then you make enough after that to have all of your benefits withheld," she said. "What happens when you turn 66 is that your benefit will be recalculated, and it will be nearly the full $2,000, so you're getting that 25% actuarial reduction that they took away, you're getting that back, basically. So that's really important for people to understand — that if you apply early, if you end up having an opportunity to work, take that opportunity and work and not worry about the Social Security."

Never earn delayed credits

Floyd said another point to consider when taking Social Security before full retirement age, or what is also called normal retirement age, is this: "The fact that you applied before full retirement age means that you can never earn delayed credits, so you will, at full retirement age, get your full benefit amount, but no delayed credits. So this is why it's really, really important for people to think hard about applying for Social Security before full retirement age, because it really limits your options."

For his part, Kitces said you should think about paying taxes and reduced benefits this way:

"The taxation of Social Security essentially creates a rule," he said. "If your income is high enough, a portion of your Social Security benefits will be taxed, and in essence, the higher your income is, the greater the percentage is."

"So once we reach an initial threshold, which varies depending on whether you're single or married, you start increasing the taxation of your benefits 50 cents on the dollar. When we get to an upper threshold, we start increasing the taxation of our benefits at 85 cents on the dollar.

And what does that means in practice? "If we earn an extra thousand dollars and we're at the upper threshold, not only do we have another thousand dollars of income we have to report on, but now we have to take $850 of Social Security benefits, and put that on our tax return, and we're going to have to pay taxes on a portion of the Social Security benefits as well," said Kitces.

At some point, "We're taxing 85% of the entire amount of Social Security benefits, which is the cap, and that's as high as we can go," Kitces said. "And from that point forward, there's, in essence, no further impact for higher earnings on causing more of your Social Security benefits to be taxed."

And that, he said, is where some of the confusion exists about earning income and Social Security benefits. "The worst-case scenario is I'm paying taxes on the dollars I earn and I'm paying some taxes on the Social Security benefits that are now also being taxed because my income is higher," he said. "And for most folks at that level, your tax bracket is probably going to be 15% and maybe 25%, and so your worst-case scenario is still I'm going to pay 25% on my income, I'm going to pay another 25% on the Social Security benefits that I just phased in, which was only 85% of them, so I only pay a portion of that 25, and the net point that we get to is still nothing close to taking home less income than you would have had, had you not worked. It simply means you get a little bit of a higher tax burden for a chunk of income as you're causing some Social Security benefits to become taxed."

To be sure, you don't want to pay more than your fair share of taxes if you are working while collecting. So Kitces and Floyd did say that there are tactics to consider. For instance, you consider adjusting your IRA withdrawals. Or you might consider investing in municipal bonds, since the interest income from taxable bond could cause more of your Social Security benefits to be taxed than otherwise.

Still, Kitces and Floyd think you shouldn't let the tax tail wag the earning income dog while collecting Social Security benefits. "We might do other things around the margins to help not make that tax situation impact it even further, but we're still at the point where a dollar you earn puts a bunch of money in your pocket that you didn't have before," said Kitces. "Whether you end up paying tax rates of 15% or 20% or 25% or 30% or 35% or 40%, if we add everything in, and there's estate tax liability and all of it is coming on your income and 85% of your Social Security, you still never get close to the point of 'I just wish I hadn't earned the dollar.'"



Read more: How to Collect Social Security and Keep Working - SmartMoney.com http://www.smartmoney.com/personal-finance/retirement/how-to-collect-social-security-and-keep-working-1300723105203/#ixzz1HLZMwOwm

Getting Back to Even is Hard - So Limit Your Loss (from ICMA.org)

Recovering from a Decline
Chart of the Week for March 11 - March 17, 2011
When developing an investment strategy, it is important to consider the risk of a decline in a portfolio's value as well as the probability of an increase in its value. Perhaps, it is even more important.

The above graph illustrates the asymmetric relationship between various levels of investment gains and losses. For example, if a portfolio starts with a $100 value and it declines by 10% to $90, it requires an 11% increase to get back to its original $100 value. The disparity gets more pronounced as the magnitude of the decline rises. From the stock market high in October 2007 to its low in March 2009, the stock market, as represented by the S&P 500 Index, dropped 57%. To get back to its original value, it must rise 132%.

All investments involve some degree of risk and investors should focus on the possibility of loss as well as the possibility of gains. As illustrated, the percentage gains required to offset losses are greater than the percentage losses involved. Care should be taken before risky investments are added to a portfolio to ensure they are consistent with one's personal goals, risk tolerance, and time horizon.

© Copyright 2011 ICMA Retirement Corporation, All Rights Reserved

taking money out of your IRA or your 401k (IRS.gov)

Did you Take an Early Distribution from Your Retirement Plan?

IRS Tax Tip 2011-42, March 1, 2011

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.

Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.


Early distributions are usually subject to an additional 10 percent tax.


Early distributions must also be reported to the IRS.


Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.


The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.


If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.


If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.


If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.


There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.


For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 575, Pensions and Annuities (PDF 227K)
Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K)
Form 5329 Instructions (PDF 40K)

Best bargains in Muni Bonds Now (Barrons)

How to Play the Panic in Muni Bonds
By RANDALL W. FORSYTH

For several months, panicked investors have been pulling cash from muni-bond funds. For investors of means, that presents an opportunity to lock in high tax-free yields for a decade or more.

Since mid-November, panicked sellers have yanked about $26 billion from muni-bond funds, disrupting a usually orderly market. For investors of means, that presents an opportunity to lock in high tax-free yields for a decade or more.

Doing so, however, takes more care than buying a muni exchange-traded fund or closed-end fund.

The undeniable crisis in public finances has moved from the political background to the top of the news in recent months. The demonstrations by Wisconsin public employees protesting the governor's drastic measures to close the state's budget deficit are only the most dramatic examples of the fiscal pressures being felt all across the nation.

But the budget problems in states and localities are not nearly as dire as those of the sovereign debtors in Europe, though you might not know that from the coverage in the popular media. Most notably, analyst Meredith Whitney predicted an imminent day of reckoning for state and local governments in a December interview with CBS News' 60 Minutes. "You could see 50 sizable defaults," she asserted. "Fifty to 100 sizable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."


Last week, a consulting firm formed by "Dr. Doom," Nouriel Roubini, chimed in with a similar forecast of $100 billion of defaults, which had no discernible impact on the muni market.

Whitney's unsupported prediction of default -- vastly in excess of that seen in the Great Depression of the 1930s -- helped push muni prices down about 10% for long-term bonds. Her assertions have been met with a deluge of criticism from muni-bond professionals, as well as in the pages of Barron's and on Barrons.com. Yet many pricing anomalies persist. Investors willing to buy individual bonds and hold them to maturity can get yields as high as 5% on highly rated paper. That's equivalent to a taxable yield of nearly 7.7%.

The bonds themselves provide the assurance of repayment of principal at maturity, which provides a measure of confidence even as their prices may fluctuate. Mutual funds, whether equity or fixed-income, are worth only what they fetch that day; there is no assurance that they will recoup their losses and return the original investment.

Among the securities to look for are bonds backed by clearly defined sources of money, including thruways, water and sewer systems and state lottery revenues.

Profiting from Panic
Other factors also conspired to make for a perfect storm for municipal bonds. The Treasury market -- which determines the broad trend in other bond markets, including munis -- also has been under pressure until recently as yields rose on increasing fears over inflation and investors' preference for risk assets. In addition, the end of the Build America Bond program on Dec. 31, which provided a federal subsidy to states and localities issuing taxable bonds, added to pressures. The BABs program meant less issuance of traditional tax-exempt securities, which had bolstered their prices and kept a lid on their yields. The sunset of BABs at the end of 2010 lifted that lid. The BABs program also was important in broadening the municipal market to institutional and global investors not interested in income free from U.S. income tax, the main lure for American individual investors.

The carnage is particularly visible in the iShares S&P National AMT-Free Municipal Bond exchange-traded fund, a quick and easy proxy for the muni market. It shed more than 10% in value from its peak in August to its trough in January and still trades 6.4% below its high.

In the process, extraordinary values have emerged as yields on tax-exempt municipals rose to equal or even exceed those of taxable Treasury or corporate bonds. Taking in munis' tax advantage, high-quality tax-exempt bonds exceeded the after-tax yields on junk bonds. Around the muni market's nadir in January, tax-free yields on investment-grade California general-obligation bonds were higher than the yields on lower-quality, fully taxable bonds of Mexico or even Colombia.

While that portion of the investing public who take their investment cues from TV were stampeding out of munis, savvy and sophisticated investors were going the other way. And even as a backlash against the doomsayers for their unsupported predictions of multibillion-dollar defaults increased, they dismissed their critics as peddlers of munis merely defending their turf.

Other disinterested and distinguished observers have pointed out how undervalued munis are.

MKM Partners' chief economist and strategist, Michael Darda, who made a perfectly timed call to buy deeply depressed but high-quality corporate bonds at the depths of the 2008 financial crisis, called valuations on munis "increasingly compelling" with higher prospective after-tax returns than medium-grade corporate bonds or equities.

David Rosenberg, chief strategist at Gluskin Sheff, one of Canada's top wealth-management firms, adds that only single-B junk corporates provide the same after-tax yield as investment-grade munis. "I can't think of a security that is going to provide a U.S.-based investor a 7% annual return for the next decade with such little risk attached -- not equities, not corporates, not commodities. I still think this is the biggest opportunity out there in the investing world today and the most glaring price anomaly."

As the pace of fund liquidations has slowed to about $1 billion a week from $4 billion at the worst of the exodus in January, the muni market has begun to recover, with the iShares muni ETF up about 5% from its mid-January trough. In addition, issuers of municipal bonds deferred new offerings amid an inhospitable market.

Despite the undeniable value that munis represent, the dilemma remains for investors. As the news coverage of the budget battle raging in Madison, Wis., dramatically shows, state and municipal finances never have been under such stress.

But, as Clifford D. Corso, chief executive and chief investment officer of Cutwater Asset Management, points out, debt service makes up a small part of the expenses for states and localities -- in contrast to the sovereign debtors of Europe, for which interest and principal payments place a huge burden on their budgets.

The impact of the budget cuts being played out in state capitals and city halls across America will fall on public schools and the poor, as Howard Cure, director of municipal research at Evercore Wealth Management, a New York firm that manages separate accounts for high-net-worth individuals and families, ruefully observes.


Moreover, muni pros agree that states and localities have powerful incentives not to default in order to maintain their access to the capital markets. That is a direct contrast to the mortgage market, to whose parlous condition the municipal market has been compared, not entirely aptly. Borrowers whose mortgage balances are greater than their homes' values have engaged in what's euphemistically called "strategic defaults."

Yet the pressures on municipal finances are "episodic, not systemic," Cure adds. In other words, not every city is in the same dire straits as Harrisburg, Pennsylvania's capital, which averted default through by an advance from the state.

The greater risk in municipal bonds, most market professionals agree, is the same as for all fixed-income securities -- higher yields resulting from a more ebullient economy, rising inflation or both, which would be expected to lead to further losses. That has them taking some tacks that may appear counterintuitive.

Ken Woods, who heads Asset Preservation Advisors in Atlanta, which specializes in fixed-income management for high-net-worth individuals, is targeting a slightly longer duration for his clients' portfolios, which are concentrated in the intermediate-maturity range.

But for lengthening duration -- in a structure called a barbell -- he is concentrating on the very shortest maturities, under two years, and relatively longer ones out to eight-to-12 years. In the process, he's avoiding the middle of the range, which would be hurt the most by an increase in short-term interest rates by the Federal Reserve.

Corso of Cutwater Asset Management is taking the same barbell approach, concentrating on the short end and the long end of the market and avoiding intermediates. That is a strategy to deal with the extreme steepness of the muni yield curve -- the much greater yields paid on the longest maturities relative to shorter ones, which are anchored by the Fed's targeting of the overnight federal-funds rate near zero.


THIS ISN'T EUROPE
Headlines blare news of state and local budget woes, but many munis promise handsome returns. Especially appealing: bonds issued by agencies facing only modest retiree benefit costs.


Sample Portfolio
Maturity S&P Moody's Book Yield*

Texas A&M University 5/15/2012 AA+ Aaa 0.57%
San Antonio TX Elec & Gas 2/1/2014 AA Aa1 1.38
State of Pennsylvania GO 2/1/2014 AA Aa1 1.22
State of South Carolina GO 3/1/2016 AA+ Aaa 1.81
State of Utah GO 7/1/2016 AAA Aaa 1.85
Sutter Health - California 8/15/2016 AA- Aa3 3.37
Salt River Arizona Power Authority 1/1/2018 AA Aa1 2.53
State of Virginia GO 6/1/2019 AAA Aaa 2.54
Ascension Health - Michigan 11/15/2019 AA Aa1 3.87
State of Delaware GO 3/1/2020 AAA Aaa 2.75
State of Maryland GO 3/1/2021 AAA Aaa 2.90
Water/Sewer District of Southern California 3/1/2022 AAA Aaa 3.50
State of Texas GO 4/1/2023 AA+ Aaa 3.49
Massachusetts Institute of Technology 7/1/2023 AAA Aaa 3.42
State of North Carolina GO 5/1/2024 AAA Aaa 3.53
NYC Transitional Finance Authority 2/1/2025 AAA Aa1 4.17
Massachusetts Bay Transit Authority 7/1/2026 AAA Aa1 4.17
NYC Water/Sewer Authority 6/15/2028 AA+ Aa2 4.42
Charlotte NC Water/Sewer 7/1/2030 AAA Aaa 4.23.
Harvard University, Mass. 12/15/2031 AAA Aaa 4.27
Tallahassee, Fla. Health Facilities 12/1/2030 NA Baa1 6.43%
Halifax Hospital Medical Center, Fla. 6/1/20206 A- BBB+ 5.70
Northampton City, Pa., Hospital Authority 8/15/2024 BBB+ A3 5.58
Michigan Hosp. Fin. Auth. (Ford Health) 11/15/2039 A A1 6.28
Iowa Higher Ed. Ln. Auth. (Grinnell Col.) 12/1/2020 AAA Aaa 3.12
State of Washington GO 1/12/2020 AA+ Aa1 3.00
Illinois Fin Auth. (Swedish Covenant Hosp.) 8/15/2029 BBB+ A- 5.81
Denver City & Co Sch Dist. Colo 12/1/2021 AA- Aa2 3.30
*As of 03/02 Sources: Cutwater Asset Management & Asset Preservation Advisors
.
The muni yield curve's steepness parallels that of the Treasury market out to 10 years, but it becomes even more extreme for lengthier maturities. Two-year triple-A munis yield about the same as the two-year T-note -- as of March 3, around 0.72%. At 10 years, the muni yields 3.20% vs. 3.52% for the Treasury. But in 30 years, the muni yields 4.72% vs. 4.60% for the Treasury. For a taxpayer in what for now is the top federal tax bracket of 35%, the top-grade muni yields the equivalent of 7.26%, the same as better-grade corporate junk.

If, or when, the steepness of the muni yield curve corrects, with short- and intermediate-term yields likely moving higher, those on the short end of the barbell will be trading as near-cash equivalents and will be able to be redeployed at higher returns.

Historically, the long end typically doesn't move much in those circumstances, so the investor picks up significant yield with little price movement. In the less likely event the curve flattens from the long end, the lengthier maturities would rally.

Woods also is emphasizing medium-grade (triple-B and single-A) bonds to a greater extent since going down the quality scale provides greater-than-usual pickups in yield. But he does that for only some 15%-20% of portfolios, with 80%-85% in double-A or triple-A bonds instead of his usual 85%-90% in top grades.

Another emphasis is on longer-term, high-coupon callable bonds. For instance, instead of buying a bond maturing in eight or 10 years, Woods might buy a bond due in 18 years but callable in eight years with a high enough coupon to ensure it is called. These so-called kicker bonds provide a higher yield and lower volatility than comparable non-callable bonds. That's in part because they trade at a significant premium to par, and individuals not steeped in the arcane math of bonds are loath to pay above par.

Cure of Evercore emphasizes bonds outside the battlegrounds of budget deficits and future pension and retiree health-care benefits. While the news focus is on states and cities, there are thousands of bonds that are issued by various agencies. These securities have structures with clearly defined sources of money, either dedicated tax payments or revenues from the projects they finance.

In New York, Cure explains, personal-income-tax payments are dedicated to payment of bonds of the Housing Finance Agency, the Dormitory Authority and Thruway Authority. In Florida, there are bonds secured by state lottery revenues, which have to cover debt service three times.

Revenue bonds to finance essential services such as water and sewer systems also have the virtue of being relatively immune to vagaries in the economy, which affect income and sales-tax revenues. In addition, localities which depend on real-estate levies have been depressed by the drop in house prices.

Meanwhile, those authorities also have relatively few employees and lower future retirement liabilities than, say, school districts.

And just think of the satisfaction you'd get paying the toll on George Washington Bridge if you owned bonds of the Port Authority of New York and New Jersey, which operates the Hudson River crossing.

.E-mail: editors@barrons.com

Copyright 2010 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com

Master Limited Partnerships for Income (Barrons)

Master Limited Partnerships



: A Good Place to Get 6% Payouts
By DIMITRA DEFOTIS
Five energy plays that could stoke your portfolio.
Every day, a veritable ocean of oil cascades through thousands of miles of pipelines crisscrossing America, making its way from shipping ports and exploration fields to refineries and end users. A similarly vast tangle of pipes does the same kind of job for natural gas. And then there's the pipeline for investors.

Master limited partnerships, which typically process oil and gas, store it and move it through pipelines, are producing some of the best yields anywhere -- typically 6% and sometimes more. And the outlook for these ventures is excellent.

MLPs pay out most of their cash flow as dividends, or "distributions." MLPs are exempt from corporate taxes. But investors are taxed on some of their distributions annually. Taxes on the rest are deferred until units are sold. In the meantime, the structure can provide hefty payouts year after year, and the deferred tax burden disappears at the unit holder's death -- making the MLP an attractive wealth-transfer tool.

The industry, which has assets of about $250 billion, should have plenty of growth ahead. Traditional energy companies are likely to sell more assets to MLPs for the tax savings and yield. In addition, partnerships have ample borrowing capacity to fund expansions. The profits from all that will flow to investors through payouts.

Yes, there are risks. MLP unit prices are on the high side right now, and payouts could suffer as interest rates and borrowing costs rise. Still, some of the sharpest investors in the field are expecting double-digit total returns for some time to come.

"If you look at where MLPs are trading relative to similarly risked assets, we think the yield is attractive," says Terry Matlack, co-founder of Tortoise Capital Advisors, which manages MLP closed-end funds. "The sector continued to grow distributions through the teeth of the economic downturn."

ANY FURTHER IMPROVEMENT in the economy would help MLPs by lifting demand for energy. Plus, a recent federal tariff increase has brought about clarity on pipelines' pricing in the coming years, says Kyri Loupis, who directs MLP strategy within Goldman Sachs' investment-management division. He holds several pipeline players, including Plains All American Pipeline (ticker: PAA), Magellan Midstream Partners (MMP) and El Paso Pipeline Partners (EPB).

Houston-based Plains transports, stores and markets crude oil, liquefied petroleum gas and related products. The current rise in oil prices could give the stock a nice nudge. Because futures prices of oil right now are higher than the current price, companies like Plains that can store crude and sell it later have greater power in negotiating storage fees.

Plains is the largest operator of storage in the energy hub of Cushing, Okla., and also has storage in Illinois that can hold Canadian crude. Plains pays a 5.9% yield, and brokerage house Stifel Nicolaus thinks distributions per unit could increase 4% in 2011, boding well for the yield.

Magellan, based in Tulsa, Okla., stores and transports refined petroleum products. It expects 7% growth in its annual distribution in each of the next two years, a growth rate that should exceed the sector average, Loupis says.

Magellan is attractively priced: Its enterprise value (market value plus net debt) is 13.3 times its adjusted Ebitda (estimated earnings before interest, taxes, depreciation and amortization, all adjusted for earnings paid to a general partnership), below the industry average of 14.3. Its yield is 5.1%, according to Wells Fargo. Plains is trading at an adjusted Ebitda multiple of 20.5, but pays a higher yield.

The largest energy partnership around, with a market capitalization of $36.5 billion, is Houston-based Enterprise Products Partners (EPD). It operates thousands of miles of pipelines, and processes and stores natural gas, oil and related products. Enterprise has been making some promising moves and, in the process, streamlining a convoluted operating structure, says portfolio manager Tom Cameron, who allocates about 20% of the Rising Dividend Growth Fund (ICRDX), to MLPs.

Enterprise has absorbed its general partner; merged with Teppco Partners, a pipeline company spinout; and recently announced its intention to merge with Duncan Energy Partners, a pipeline MLP. Enterprise Products isn't particularly expensive, with an enterprise value to Ebitda multiple of 13.8. Its yield is 5.4%.

The beauty of pipelines is that they collect steady fees based on volume, rather than volatile commodity prices. Natural-gas pipelines are all the more attractive as the country increasingly turns to this clean-burning form of energy. Natural-gas pipeline operators like El Paso Pipeline stand to benefit handsomely. This MLP was carved out of the exploration and production company El Paso in 2007. The parent still has pipeline assets that it's likely to "drop" into the tax-efficient MLP structure, a practice that has increased distributions 50% since 2007. El Paso's yield is 4.7%, and it looks reasonably priced with an enterprise value to Ebitda of 13.4.

Beyond pipelines, there's a coal play worth a look: Natural Resource Partners (NRP), a Houston-based MLP. Formed in 2002 with properties sold by U.S. railroads and coal companies, NRP leases land to America's biggest coal companies. Its land produces 5% of all U.S. coal and its contracts wisely hedge against drops in coal prices.

NRP is now acquiring 200 million tons of coal reserves in the Illinois basin, with production beginning in 2012. That should contribute to 5% to 6% annual distribution growth starting in 2012, according to Dallas-based Swank Capital. NRP trades with a multiple of enterprise value to Ebitda of 16.2, and its yield is 6.1%.

Investments like these could be just the thing to fire up your income.

.E-mail: editors@barrons.com

Copyright 2010 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com