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UTG

I have been in UTG for a long time. It’s now trading at a premium to NAV as many of you know. I reinvest the monthly dividends but at nearly 69 I’ll be eventually taking them as cash. Most of my holding is in my tIRA. I hold a little in my brokerage account.

I’d like to use this to help pay monthly expenses not covered by my pension and SS income. Eventually I’ll be faced with RMD’s as well. I read that some people use funds like this as a substitute to an immediate annuity.

Any thoughts or ideas about this kind of strategy? 

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Frequent Contributor

Re: UTG


@Tomato2 wrote:

I have been in UTG for a long time. It’s now trading at a premium to NAV as many of you know. I reinvest the monthly dividends but at nearly 69 I’ll be eventually taking them as cash. Most of my holding is in my tIRA. I hold a little in my brokerage account.

I’d like to use this to help pay monthly expenses not covered by my pension and SS income. Eventually I’ll be faced with RMD’s as well. I read that some people use funds like this as a substitute to an immediate annuity.

Any thoughts or ideas about this kind of strategy? 


I have owned UGT since it came out of the box in 2004. It’s been a reliable dividend payer even in 2008 when it dropped  60% but still paid a 9 cent a month dividend. Today dividend is 18 cents a month for about a 7% dividend And I get a $900 a month distribution taxed at cap gain rates which I consider to be an annuity.

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Explorer ○○○

Re: UTG

Your strategy sounds fine to me. I own UTF - similar to UTG but with a higher dividend. UTG doesn't meet my minimum yield needs (I burn through cash).

Both have steadily increased dividends over the years. If I didn't need so much yield I would prefer UTG because it owns less midstream and MLPs.

Flute

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Employee
Employee

Re: UTG


@Tomato2 wrote:

I’d like to use this to help pay monthly expenses not covered by my pension and SS income. Eventually I’ll be faced with RMD’s as well. I read that some people use funds like this as a substitute to an immediate annuity.

Any thoughts or ideas about this kind of strategy? 


Many on the CEF forum (or Dividend Investing forum) utilize monthly distributions to meet the yearly RMD.  So for example in the CEF UTG, you can request from your record keeper to automatically send the monthly distributions (and turn off the reinvestment) and this way you always keep your principal and generate a cash flow in perpetuity on the underlying investments. 

Ask you Record Keeper the following:

"I Need to setup automated account sweep to take the dividends and interest distributions from my IRA account to be deposited to the bank checking account on a monthly basis until RMD is met from the beginning of each month starting in MM/YYYY."

If you have enough investments that generate monthly cash flow to meet the yearly RMD than you can take out the distribution and stop once RMD is met in order to keep your yearly taxes lower (if TRADIRA/401k) and reinvest some additional distribution to get a higher cash output the following year (if no distribution cuts are achieved).

Boris

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Re: UTG


@borosp wrote:

@Tomato2 wrote:

I’d like to use this to help pay monthly expenses not covered by my pension and SS income. Eventually I’ll be faced with RMD’s as well. I read that some people use funds like this as a substitute to an immediate annuity.

Any thoughts or ideas about this kind of strategy? 


Many on the CEF forum (or Dividend Investing forum) utilize monthly distributions to meet the yearly RMD.  So for example in the CEF UTG, you can request from your record keeper to automatically send the monthly distributions (and turn off the reinvestment) and this way you always keep your principal and generate a cash flow in perpetuity on the underlying investments. 

Ask you Record Keeper the following:

"I Need to setup automated account sweep to take the dividends and interest distributions from my IRA account to be deposited to the bank checking account on a monthly basis until RMD is met from the beginning of each month starting in MM/YYYY."

If you have enough investments that generate monthly cash flow to meet the yearly RMD than you can take out the distribution and stop once RMD is met in order to keep your yearly taxes lower (if TRADIRA/401k) and reinvest some additional distribution to get a higher cash output the following year (if no distribution cuts are achieved).

Boris


Why would an investor put UTG in an IRA which results in the distributions from qualified dividends and cap gains being taxed as ordinary income instead of cap gains rate 0 or 15%? Half of my $900 a month from UTG is taxed as a qualified dividend at 0 or 15% and the Other half is cap gains taxed at 0 because I have cap losses. Putting UTG in an IRA wastes one of the major reasons for investing in UTG which is the lower cap gains tax rate on distributions.

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Re: UTG

@Intruder This is probably a dumb question, but I seem to remember someone on the forum talking about UTG holding rights offerings occasionally which he/she indicated were a pain in the neck to deal with.

Not being familiar with the mechanics thereof, this kept me from investing in UTG.

Any insight or comments on this issue?

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Employee
Employee

Re: UTG


@Intruder wrote:


Why would an investor put UTG in an IRA which results in the distributions from qualified dividends and cap gains being taxed as ordinary income instead of cap gains rate 0 or 15%? Half of my $900 a month from UTG is taxed as a qualified dividend at 0 or 15% and the Other half is cap gains taxed at 0 because I have cap losses. Putting UTG in an IRA wastes one of the major reasons for investing in UTG which is the lower cap gains tax rate on distributions.


All TRADITIONAL IRA distributions are taxed at ordinary income.  One would invest in UTG or any other CEF in a TRAD IRA (or ROTH) is too generate income over long term.  If one invested in UTG 10 years ago in an IRA and reinvested TAX FREE for 10 years it would have grown exponentially by a total return and increased amount of income your underlying investment generates (all the while not paying 1 penny in taxes).  Individuals use closed end funds or dividend paying stocks to replace their income in retirement.  Whether you invest in a CEF in a taxable account or tax differed account is only relevant to ones objective of being an income investor rather than a growth investor.

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Re: UTG


@Bizman wrote:

@Intruder This is probably a dumb question, but I seem to remember someone on the forum talking about UTG holding rights offerings occasionally which he/she indicated were a pain in the neck to deal with.

Not being familiar with the mechanics thereof, this kept me from investing in UTG.

Any insight or comments on this issue?


UTG has had rights offerings in the past And I have participated in one or two of them. I don’t remember the details because it was several years ago when the last one was offered. As I recollect a share holder can buy more shares at the price of the rights offerings or decline and receive a small cash payment for surrendering.

 

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Contributor ○

Re: UTG


@Intruder wrote:

@Bizman wrote:

@Intruder This is probably a dumb question, but I seem to remember someone on the forum talking about UTG holding rights offerings occasionally which he/she indicated were a pain in the neck to deal with.

Not being familiar with the mechanics thereof, this kept me from investing in UTG.

Any insight or comments on this issue?


UTG has had rights offerings in the past And I have participated in one or two of them. I don’t remember the details because it was several years ago when the last one was offered. As I recollect a share holder can buy more shares at the price of the rights offerings or decline and receive a small cash payment for surrendering.

 


So is there not a significant negative impact in terms of dilution or total return if one doesn't participate?  Just trying to get a feel for what to expect.

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Frequent Contributor

Re: UTG


@Intruder wrote:

@Bizman wrote:

@Intruder This is probably a dumb question, but I seem to remember someone on the forum talking about UTG holding rights offerings occasionally which he/she indicated were a pain in the neck to deal with.

Not being familiar with the mechanics thereof, this kept me from investing in UTG.

Any insight or comments on this issue?


UTG has had rights offerings in the past And I have participated in one or two of them. I don’t remember the details because it was several years ago when the last one was offered. As I recollect a share holder can buy more shares at the price of the rights offerings or decline and receive a small cash payment for surrendering.

 


It was offered two years ago. Unfortunately, it was new to me and sold it at a loss. However, I made money on the original purchase, sold all, and moved on to others. I did not understand the tax effects at the time I sold but it dawned on me when I filled my tax return after six months in March of next year. I had bought them at a discount originally. Well, it is all over now.

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Re: UTG

Important thing for rights offering is to do something - either sell tradable rights [if don't have more money to invest] or use them to buy additional shares.

If one just ignore them, there is dilution. There is typically is big investor/institution in the background to scoop all unutilized shares. Don't assume that other will ignore too or that rights offering may fail.

YBB
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Re: UTG


@borosp wrote:

@Intruder wrote:


Why would an investor put UTG in an IRA which results in the distributions from qualified dividends and cap gains being taxed as ordinary income instead of cap gains rate 0 or 15%? Half of my $900 a month from UTG is taxed as a qualified dividend at 0 or 15% and the Other half is cap gains taxed at 0 because I have cap losses. Putting UTG in an IRA wastes one of the major reasons for investing in UTG which is the lower cap gains tax rate on distributions.


All TRADITIONAL IRA distributions are taxed at ordinary income.  One would invest in UTG or any other CEF in a TRAD IRA (or ROTH) is too generate income over long term.  If one invested in UTG 10 years ago in an IRA and reinvested TAX FREE for 10 years it would have grown exponentially by a total return and increased amount of income your underlying investment generates (all the while not paying 1 penny in taxes).  Individuals use closed end funds or dividend paying stocks to replace their income in retirement.  Whether you invest in a CEF in a taxable account or tax differed account is only relevant to ones objective of being an income investor rather than a growth investor.


Whatever floats your boat.

The ExponentialLy higher distributions of UTG reinvested in the TIRA would still be taxed at higher ordinary rates than if UTG was in a taxable account and increases MAGI which can result in higher Medicare B premium if the IRMAA limits are exceeded. I would convert the TIRA with UTG to a Roth to avoid taxation on UTG Distributions.

As a practice I keep my TIRA as low as possible to reduce RMDs. One third of my retirement funds are in a Roth IRA for which there are no RMDs which reduces my taxable income by 30K Per year.

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Explorer ○

Re: UTG

I have owned UTG but currently only hold UTF in this space.

Check out DNP  - it does not have the volatility as some of the others over longer time periods.  BUI is also worth investigating - both of these are on my watch list.

Good Luck,  Joe

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