The 1 High-Yield Asset You Should Never Put Into a Roth (and 3 You Should)
Not every high-yield asset belongs in a Roth IRA, and parking the wrong one there can saddle the account itself with a surprise tax bill. Knowing which popular income payers to keep out changes the math on your entire placement…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Every April, high-yield investors in the 24% federal bracket quietly write a check to the IRS that they never had to send. A $500,000 portfolio spinning off roughly 8% in blended yield hands the government $9,600 per year in ordinary income tax when it sits in a taxable brokerage account.
Inside a Roth, that same portfolio hands over zero. The stock selection determines whether that gap actually shows up, and one popular high-yield asset can turn the Roth advantage into a headache.
1 High-Yield Asset to Keep Out of Your Roth
Enterprise Products Partners (NYSE:EPD | EPD Price Prediction) is the classic example. The midstream giant carries a market cap of roughly $84.5 billion, a current yield of 5.67%, and a 56-cent quarterly distribution that has climbed steadily from $0.515 in early 2024. The catch: EPD is structured as a master limited partnership. It issues a K-1 rather than a 1099, and MLP income held inside an IRA can generate Unrelated Business Taxable Income (UBTI). Above a modest annual UBTI threshold, the IRA itself, not the account holder, can owe tax and have to file Form 990-T.
MLP distributions already receive favorable tax treatment in a taxable account because much of the payout is treated as return of capital. Putting EPD in a Roth trades away that natural tax shelter and adds paperwork risk. This is not tax advice, and readers with existing MLP positions should confirm the specifics with a tax professional.
3 Names That Belong in the Roth
The stocks that gain the most from Roth placement are the ones paying ordinary, non-qualified income: REITs and BDCs.
1. Realty Income (NYSE:O) yields 5.27%, pays monthly, and just declared its 674th consecutive common stock monthly dividend. REIT dividends are ordinary income in a taxable account. In a Roth, they compound tax-free.
2. Ares Capital (NASDAQ:ARCC) yields 9.64% at a 48-cent quarterly regular dividend, backed by a $29.3 billion portfolio and 68 consecutive quarters of stable-to-rising payouts. BDC distributions are taxed as ordinary income at your marginal rate outside a Roth.
3. Main Street Capital (NYSE:MAIN) pays a 26-cent monthly regular dividend raised 3.9% from the fourth quarter of 2025 plus a 30-cent supplemental, its 20th consecutive quarterly supplemental. Yield sits at 5.54%.
Tax Delta at the 24% Bracket
Anchor the math to a $500,000 position blended to an 8% yield across those three names. Gross annual income: $40,000. Held in a taxable account at the 24% bracket, the after-tax figure drops to roughly $30,400. Held in a Roth, you keep the full $40,000. That is a $9,600 annual Roth advantage, or close to $96,000 over ten years before any reinvestment.
Bracket Multiplier by Income Level
The same $40,000 dividend stream produces very different net figures depending on where you sit in the federal ordinary-income brackets:
| Bracket | Tax Cost (Taxable) | Net After Tax | Roth Advantage |
|---|---|---|---|
| 22% | $8,800 | $31,200 | $8,800 |
| 24% | $9,600 | $30,400 | $9,600 |
| 32% | $12,800 | $27,200 | $12,800 |
| 37% | $14,800 | $25,200 | $14,800 |
A 37% bracket investor loses nearly $15,000 a year on the same portfolio a 22% bracket investor loses under $9,000 on. The higher the bracket, the more urgent the placement decision.
Compounding Cost Most Readers Miss
The $9,600 annual delta at 24% compounds year after year. Reinvested tax-free at the same yield inside the Roth, that delta becomes a permanent second income stream feeding on itself. Even ignoring any price appreciation, that is roughly $96,000 over ten years and materially more over twenty. Held outside a Roth, that money never existed for you. It was always the IRS’s.
What to Do Next
- If you own any BDC or net-lease REIT in a taxable account, calculate the annual tax cost at your bracket before your next tax filing.
- Before ruling out a Roth conversion on cost grounds, run the numbers on the specific ordinary-income payers you already hold. The quiet years between your last paycheck and your first RMD are often when conversions are cheapest, a window we sized up in a free guide here: The Roth Window. The long-run delta often dwarfs the conversion bill.
- If you own EPD or another MLP inside an IRA today, review your K-1s and confirm UBTI exposure with a tax professional before adding to the position.
Contact [email protected] for any questions or corrections.
Joel South covers large-cap stocks, dividend investing, and major market trends, with a focus on earnings analysis, valuation, and turning complex data into actionable insights for investors.
He brings more than 15 years of experience as an investor and financial journalist, including 12 years at The Motley Fool, where he served as an investment analyst, Bureau Chief, and later led the Fool.com investing news desk. He has also co-hosted an investing podcast and appeared across TV and radio discussing market trends.
