Quick Read
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A $400,000 Roth IRA holding Realty Income and Ares Capital keeps roughly $5,690 more per year than a taxable account at the 24% bracket.
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REITs and BDCs produce ordinary income taxed at the full bracket rate, making them the highest-priority candidates for Roth shelter over qualified dividends.
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Reinvesting tax savings at 4% turns a yearly $5,690 gap into roughly $169,400 over 20 years at the 24% bracket.
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At the 24% bracket, a $400,000 portfolio of five high-yield dividend stocks pays about $25,500 a year. In a taxable account, roughly $5,690 goes to the IRS. In a Roth, qualified distributions are tax-free once the account has passed the five years and the owner has reached age 59½ (IRS Publication 17).
Roth Versus Taxable: A $5,690 Gap Every Year
The model puts $80,000 into each of five names, listed here from best-covered to worst-covered. Yields are forward annualized dividends divided by current share prices.
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Realty Income( NYSE:O ): 5.49% yield, about $4,390 a year. The company has paid 673 consecutive monthly dividends, and its 2026 AFFO guidance of $4.44-$4.45 per share sits well above the $3.258 forward dividend. REIT payouts are taxed as ordinary income (non-qualified), so the full bracket rate applies when they are not sheltered.
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Altria( NYSE:MO ): 5.98% yield, about $4,780. The August increase was its 61st in 57 years, and 2026 EPS guidance of $5.66-$5.74 covers the $4.44 dividend. Its dividends are qualified, and qualified dividends are taxed at the 0%, 15%, or 20% capital gains rates. That makes Altria the lowest Roth priority in this group.
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STAG Industrial( NYSE:STAG ): 4.32% yield, about $3,460. Third-quarter Core FFO of $0.66 per share covers the $0.3875 quarterly payout, and occupancy is 95.9%. As a REIT, it pays ordinary-income distributions.
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Main Street Capital( NYSE:MAIN ): 5.82% yield on regular dividends only, about $4,660. Second-quarter adjusted EPS of $1.04 funds the $0.265 monthly payout, with a $0.30 supplemental on top. BDC distributions are ordinary income, so every extra also escapes tax inside a Roth.
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Ares Capital( NASDAQ:ARCC ): 10.27% yield, about $8,210. Coverage is the weak spot: third-quarter net investment income of $0.46 per share came in below the $0.48 dividend. Management is counting on the MidCap Financial deal to close that gap. Ares Capital produces the largest ordinary-income stream in the group, so it gets the most out of Roth treatment.
24% Bracket
Taxable
Roth
Gross income
$25,500
$25,500
Federal tax
$5,690
$0
Net income
$19,810
$25,500
10-year delta (no growth)
$56,900
REIT investors may be able to deduct 20% of qualified REIT dividends under 26 U.S.C. § 199A(b)(1)(B), which would trim the taxable cost of holding Realty Income and STAG. Because the figures above use the full bracket rate, treat them as the upper bound.
Bracket Multiplier: Higher Earners Lose More
In 2026, the 24% rate applies to single filers with income over $105,700, and the 37% rate starts above $640,600. In the table below, Altria's dividends are taxed at 15% in every bracket except the top one, where the rate is 20%.
| Bracket |
Taxable Net Income |
Roth Advantage Over Time |
|---|---|---|
| 22% |
$20,230 |
$5,280 |
| 24% |
$19,810 |
$5,690 |
| 32% |
$18,150 |
$7,350 |
| 37% |
$16,880 |
$8,620 |
Compounding Turns a Tax Bill Into a Six-Figure Gap
Assume the annual tax savings are reinvested at a conservative 4%, with no share-price gains. At 24%, the tax savings reach about $68,300 after 10 years and $169,400 after 20. At 37%, the 20-year figure is about $256,800. That money is what you give up by keeping the same five stocks outside a tax-advantaged account over the long run. A Roth also has no required minimum distributions while the owner is alive (Publication 17), so the income can keep compounding for as long as you choose.
Those low-tax years between a final paycheck and the first required withdrawal are often the cheapest window to move dividend-heavy holdings into a Roth, and we sized up that window in a free guide here: The Roth Window.
Three Moves to Make Before Your Next Filing
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Pull your Form 1099-DIV for any BDC or REIT you hold outside a tax-advantaged account. Multiply the ordinary dividends in box 1a, less the qualified amount in box 1b, by your bracket. That gives you your actual annual cost.
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Run the Roth conversion math on Ares Capital first. At 24%, it costs about $1,970 a year in income taxes when held outside a tax-advantaged account. A $4,780 Altria position at the 15% qualified rate costs about $720.
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Before you allocate limited Roth space, compare each holding's dividend coverage. Ares Capital's shortfall between income and dividends is worth tracking alongside its tax benefit.
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