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Strategies & Market Trends : Value Investing
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To: MCsweet who wrote (36287)12/23/2009 8:47:33 PM
From: E_K_S  Read Replies (1) of 78774
 
Hi MCsweet - I am looking to convert my non qualified preferred dividends to "qualified" dividends as I expect all tax rates to go up in the next few years.

To pay my annual health care insurance premiums, I need to buy $134,560 worth of GOV (5,800 shares). If the annual dividend of $1.60/share is paid, I will have enough "after tax" (Fed & State) proceeds to pay my monthly heath insurance payments. I am assuming that the Federal "qualified dividend" tax rate will increase to a minimum 25% rate (from my current 15% rate) and the CA "qualified" dividend rate will go no higher than 10%.

If I did this with preferred dividend income, the minimum non qualified dividend Federal tax rate may go as high as 50%. Therefore, I would have to buy 6,877 shares ($159K) to achieve the same goal.

Too bad health care premiums are not tax deductible like mortgage interest.

Yes there is more credit risk but is it worth an extra $25K (or more)in the principal investment not to mention the specific company risk involved in buying the senior debt note? I plan to spread $150K around into as many 5% and 7% qualified dividend paying companies to achieve a blended rate just north of 6%. If I am lucky, I should also generate an average 4% annual capital gain on the basket of qualified dividend paying equities.

That's the plan as long as my health care premiums do not grow faster than my dividend payouts plus the earnings from the long term capital gains.

EKS
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