This Stock Pays Monthly Dividends, and Inside a Roth IRA, They Are 100% Tax Free.
Most investors overlook how much their brokerage account quietly surrenders to the IRS every year on REIT dividends, and the difference between the right account and the wrong one compounds into six figures faster than you might expect.
A $500,000 position in Realty Income (NYSE:O) at its current yield pays out $28,500 a year in monthly checks. If you’re in the 24% bracket and the shares are in a taxable brokerage account, $6,840 of that is owed to the IRS each year.
What a Roth Saves You on $500,000 of Realty Income
Realty Income yields 5.70% and pays a monthly dividend. The latest payment is $0.2715 per share, payable October 15, 2026. That works out to an annualized forward dividend of $3.258. In September, the company declared its 136th monthly dividend increase, and in August it announced its 674th consecutive monthly dividend.
Realty Income is a strong fit for a Roth because of how it’s taxed. Most REIT distributions count as ordinary income, so they’re taxed at your full bracket rate. Qualified dividends get lower rates, but REIT payouts mostly don’t qualify. The IRS says its investment-income rules don’t apply to investments held in IRAs. Roth distributions are tax-free once they qualify, meaning the account has met the 5-year rule and the owner is at least age 59½.
| Scenario (24% bracket) | Gross Income | Federal Tax | Net Income |
|---|---|---|---|
| Roth IRA | $28,500 | $0 | $28,500 |
| Taxable account | $28,500 | $6,840 | $21,660 |
The Roth comes out ahead by $6,840 a year. Over 10 years, that adds up to $68,400, before accounting for any growth or reinvestment. Per month, the Roth delivers $2,375 and the taxable account keeps $1,805.
The business behind the payout is holding up. In the second quarter of 2026, AFFO per share rose 3.8% to $1.09, and occupancy was 98.8%. On the earnings call, chief executive Sumit Roy said the results supported raising full-year guidance “to a new range of $4.44 to $4.45, representing growth of approximately 4% at the midpoint.” Fitch initiated coverage of the company with an A long-term issuer rating.
Higher Brackets Lose More Every Year
Under the IRS 2025 tables, the 24% bracket covers taxable income from $103,351 to $197,300 for single filers and $206,701 to $394,600 for married couples filing jointly. Here is the tax impact on the same $500,000 position at each major bracket:
| Bracket | Taxable Net Income | Annual Roth Advantage |
|---|---|---|
| 22% | $22,230 | $6,270 |
| 24% | $21,660 | $6,840 |
| 32% | $19,380 | $9,120 |
| 35% | $18,525 | $9,975 |
| 37% | $17,955 | $10,545 |
These figures use the full bracket rate, so treat them as the upper limit. Many filers can claim the Section 199A deduction, which lowers the effective rate on REIT dividends. The net investment income tax can also apply to high earners, which drives the gap wider. Business development companies (BDCs), mortgage REITs, and high-yield energy names that pay ordinary dividends follow the same pattern: the higher your bracket, the more a Roth saves you.
Compounding Turns $6,840 Into a Six-Figure Gap
The annual savings matter less than what happens when you reinvest them. If the $6,840 yearly difference is reinvested at a conservative 4% rate, it grows to about $82,100 after 10 years and about $203,700 after 20 years. Without compounding, 20 years of savings would total $136,800. These numbers leave out any change in the share price. They measure only the tax you would pay by holding Realty Income outside a tax-advantaged account.
Monthly payments help here as well. Each payment can be reinvested the same month at no tax cost within a Roth, so the money compounds 12 times a year.
Three Moves Before Your Next Tax Filing
- To figure the yearly cost of holding Realty Income or another REIT in a taxable account, multiply the yearly distributions by your bracket rate. That gives you a dollar figure for what the placement costs you each year.
- A Roth conversion may seem too expensive, so compare the one-time tax on converting the shares with the yearly savings shown above for your bracket.
- In a phased conversion, holdings that pay ordinary dividends, such as REITs, BDCs and mortgage REITs, have the largest annual tax cost when held outside a tax-advantaged account. Qualified-dividend stocks have a lower one.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
