Why High-Yield REITs and BDCs Can Be Powerful Income Stocks Inside a Roth IRA

At the 24% bracket, a $500,000 portfolio of high-yield REITs and a BDC throwing off about $50,500 a year sends roughly $12,100 of it to the IRS. In a taxable account, dividends are taxed in the year you receive them. Inside a Roth IRA, the same payout stays whole, and that gap grows every year the money is reinvested.

Roth Versus Taxable: A $12,100 Annual Gap

For 2026, the 24% rate applies to single filers with taxable income over $105,700 ($211,400 for joint filers). The model puts $125,000 into each of four stocks whose payouts are taxed as ordinary income. Yields are based on forward annualized dividends and current prices.

That works out to $12,100 a year, or $121,200 over 10 years with no growth assumed.

• Annaly Capital Management: Mortgage REIT payouts are taxed almost entirely as ordinary income. Annaly raised its quarterly dividend to $0.75, and on this stake it carries the largest tax bill, about $5,100 a year. The stock has fallen 18.87% in a month, and the dividend has been cut in past cycles.
• Blue Owl Capital: BDC distributions come mostly from interest income and are taxed as ordinary income, about $3,700 a year here. The regular dividend fell to $0.31 in 2026 from $0.37.
• NNN REIT: NNN has raised its dividend for 37 consecutive years. Most REIT dividends are taxed as ordinary income rather than at qualified rates.
• Agree Realty: Agree pays $0.267 a month, so a taxable account records 12 taxable payments a year.

REIT investors can claim the Section 199A deduction, which shrinks the REIT tax bill somewhat. The figures above use the full bracket rate.

Qualified Payers Gain Less From a Roth

Qualified dividends are taxed at 0%, 15%, or 20%. For a filer in the 24% bracket, that usually means 15%. Duke Energy (NYSE:DUK) yields 3.7%. A $125,000 stake pays about $4,700 a year and owes roughly $700 in tax. Johnson & Johnson (NYSE:JNJ) yields 2.1%, which leaves about $390 in tax on the same stake. Annaly owes more than seven times Duke’s bill on the same dollars.

Higher Brackets Raise the Roth Gap

Compounding Makes the Cost Permanent

If the yearly tax savings are reinvested at a conservative 4%, the 24% bracket gap reaches about $145,500 after 10 years and $361,000 after 20. This figure leaves out any stock price gains. It is what holding these four stocks in a taxable account costs over time.

Note that the money has to be in the Roth before any of this applies. Annual contribution limits and income phase-outs restrict direct contributions, so moving large positions usually means a Roth conversion, which is taxed in the year you convert (the quiet stretch between your last paycheck and your first RMD is usually when that bill is smallest, something we sized up in a free Roth guide here: The Roth Window). Withdrawals are tax-free only after the 5-year period and generally after age 59½.

What to Check Before Your Next Filing

1. Look at box 1a and box 1b on each Form 1099-DIV. If most of a holding’s dividends appear only in box 1a, those payouts are taxed as ordinary income and carry the most tax drag.
2. Ranked by tax drag, mortgage REITs and BDCs come first, equity REITs second, and qualified payers like Duke and J&J last.
3. A conversion’s one-time tax bill can be weighed against the yearly gap at a given bracket. Phased conversions, starting with the ordinary-income payers, spread that bill over more than one tax year.

Contact [email protected] for any questions or corrections.