What is the “N54(a) Retirement Account” teased by Ian Wyatt?

Sniffing out the special "accounts" teased by Wyatt's High Yield Wealth

By Travis Johnson, Stock Gumshoe, July 19, 2012

Ian Wyatt is promoting his High Yield Wealth newsletter by touting a “little-known government loophole” that he thinks could help you collect a lot more income than a 401(k) account … so, naturally, we want to know what it is.

Here’s how he drums up interest:

“How a little-known government loophole called the ‘N54(a) Retirement Account’

“could replace or supplement your 401(k) or IRA account – and completely fund your retirement, starting today.

“It lets you collect up to 5 times more income than a 401(k) account – and could pay you $5,000 to $25,000 in extra income every year… starting with as little as $50.

“Below you’ll find out how to set up your own “N54(a) Retirement Account” and start receiving checks immediately… no matter what your age, income or employment status.”

And yes, when newsletter teasers reference accounts like the “N54(a)” account or the “801(k)” account we saw teased a while back, it pretty much means “there is no such thing, we’re making it up.”

Which isn’t to say that it isn’t a real investment or even a reasonable strategy — but it’s not a secret kind of account you’ve never heard of.

So … we know that the “801(k) account” teaser was all about DRIP investing … is the N54(a) the same, or something different?

Looks like it’s different — here are some more clues:

“it’s all made possible by an under-the-radar congressional amendment that works by “increase(ing) the amount and certainty of the return on… investor capital….

“… the mainstream media is finally starting to wake up and take notice. In December 2011, Barron’s ran an article proclaiming:

“A(n) ‘N54(a) Retirement Account’ makes a lot of sense.”

And then he does eventually clarify that an “N54(a)” is NOT like a 401(k) … though this is an excuse for more promotion, too:

“You see, an “N54(a) Retirement Account” is similar to your 401(k) in that it lets you collect regular income payments for retirement…

“But that’s where the similarities STOP.

  • Because unlike a 401(k), which requires you to wait until you reach age 59&1/2; to start collecting income…
    • With an “N54(a) Retirement Account” you can withdraw funds at any age… starting immediately.
  • And while you can’t contribute to a 401(k) unless you’re working…
    • You can add money to your “N54(a) Retirement Account” at any time, regardless of your current, or past, employment status – even if you’re already retired.

“These are just a few of the reasons that an “N54(a) Retirement Account” is a far superior way to pay for retirement than a 401(k) account.

“But I haven’t even gotten to the best part…

“What really distinguishes an ‘N54(a) Retirement Account’ from a 401(k) – or any other income investment for that matter – is the size of the income checks.

“These checks typically pay out 3 to 5 times more income than you can get from an ordinary 401(k).”

So we’ve got a pretty classic “apples vs. oranges” comparison going here, no matter what an N54(a) might turn out to be — clearly it’s something that’s income focused, while a 401(k) is just a way to accumulate pre-tax retirement savings. 401(k)s do not “pay out” income at all, at least not until you start withdrawing from them in retirement.

So what is Wyatt teasing?

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Well, he doesn’t get into any specific individual versions of these investments that he thinks you should buy, so we can peg a ticker symbol for you … but it’s very clear than an N%$(a) is … a Business Development Company (often abbreviated BDC’s).

Which, along with REITs and MLPs and Trusts, is one of more popular of the high-yielding publicly traded classes of investment (though there are some private, unlisted REITs and BDCs, to be sure). Like REITs and MLPs, BDCs pay out pretax income, so the distributions you get are usually subject to regular income tax (unless they’re in a tax-shielded account like a 401(k), ironically enough).

And yes, BDC’s do have an association with the made-up “N54(a)” name — the legislation that enables BDC’s is part of the Investment Company Act of 1940 (though the particular amendments enabling BDCs were passed in 1980), and the particular section regarding a company’s eligibility to become a BDC is, indeed, section 54(a) of that Act.

BDCs are often referred to as publicly traded venture capital or private equity companies — and sometimes, as Wyatt has done in the past, they’re teased as a way for regular “little guy” investors to get on the private equity gravy train. This is the third similar company that Wyatt has aggressively teased over the last year or so, the first was Ares Capital which he touted as the “8.2% Bank Account” in a particularly misleading bit of hype, and the second was Compass Diversified Holdings (CODI) — though CODI is not technically a BDC, it’s a very similar kind of business.

Business Development Companies most often act as financiers, consultants and “private” investors in small and mid-sized companies — companies that are generally too small to get a good deal from the Wall Street Banks or who don’t want to go public, but too big or too in need of restructuring hel