“Virtual Florida Retirement — Tax-Free Income!”

By Travis Johnson, Stock Gumshoe, January 18, 2008

“And collect up to $3,000 a month in TAX FREE income starting as early as Feb. 13, 2008.”

That’s how a recent email teaser ad from Stansberry and Associates for Steve Sjuggerud’s True Wealth newsletter opens — and this kind of investment is always very appealing for folks when stocks are in crisis mode, as appears to be the case today. So, this one seems to be worth a look.

The promise is that you can “Live Like a Florida Retiree Without Ever Leaving Home.” Man, I was hoping to put off living like a Florida retiree for a few years, at least … I just can’t work up an appetite for dinner at 4:30. I have been known to leave my turn signal on for 20 minutes, though, and my hairline is definitely receding at a rapid pace, so perhaps I’m halfway there already.

Kidding! I kid because I love.

Anyway, back to business. This ad tells us that getting tax-free income is one of the main benefits of retiring in Florida, and that they have a system where — even if you don’t live in Florida — they can get you “$1,000 to $3,000 in extra tax-free income every 4 weeks.”

Sounds pretty enticing, no?

And this teaser has all the hallmarks of the great ones: A long list of individuals and the monthly income they’re pulling from their investments in this system (without, of course, noting how much capital they’re investing to get that income); a reference to a government mandate or law that authorizes this special income; and a few quotes from reputable business magazines that give it gravitas.

The law was apparently passed in 1977, and it “authorizes states like Florida to distribute tax-free income to investors – no matter how old you are or how much you earn.”

And they even call it an “obscure law” — which seems to be code for, “We don’t think you understand legal stuff.” They actually do give the public law number, too, which is 94-455.

(Quick learning opportunity: That number means this was the 455th law passed by the 94th Congress. The law was technically passed in the fall of 1976 and signed by President Ford — hence the name, “Tax Reform Act of 1976,” but it applied beginning in the 1977 tax year.)

And the quotes are pretty solid, too:

From Fortune: “”Fixed-income investors looking for juiced-up yields have been finding them lately in [Virtual Florida Retirement].”

And: “Steven Goldberg, a business reporter for Kiplinger’s Personal Finance, recently said: ‘For yield-starved investors, it’s hard to find better deals….'”

So we’ve got all the ingredients of a great teaser, except the details — what’s the investment?

I’ll quote:

“The law permanently changed the tax code, making it possible for state governments to partly fund tax-free monthly payments to thousands of Americans… Simply put, this obscure law made possible one of the biggest boons to U.S. retirees … State governments like Florida, California, and New York constantly fund the construction and maintenance of hospitals, schools, roads, bridges, and public buildings … Because these projects involve billions of dollars, state governments came up with a unique investment plan some years back: They’d help pay dividend checks to participating tax-paying citizens across the country… and in return, you’d get a stake in these government projects.”

So that’s what we’re being teased with here — if you are at all experienced as an investor, or if you’re interested in income investing, you are probably aware that this is simply, to this point, a complicated teaser for municipal bonds. Municipal bonds are just like treasury bonds — except instead of lending your money to the federal government, you’re lending to a local government, usually for some kind of project or special need like infrastructure upgrading, school building, etc.

Municipal bonds provide income that is tax free at the federal level, and sometimes at the state level, too, if you live in the same state as the bond originates from.

But the Stansberry folks aren’t telling us to buy municipal bonds — they have something slightly more complicated to tease:

And the clues?

“It would be logistically very complicated for each state to administer the monthly dividends and send checks to U.S. citizens all over the country. As a result, private companies have stepped in … In other words, private companies (listed on U.S. stock exchanges) act as intermediaries.”

The next distribution is on February 13 — they list a bunch of future distribution dates, but say that there are four favorites that they recommend, all of which pay monthly in the middle of the month.

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