Posted November 10, 2021
By Zach Scheidt
Government Mandated Income — From Wall Street
As you know, it's Income Week here at Rich Retirement Letter.
And today, I'm going to show you a class of Wall Street income investments that are mandated by the U.S. government to pay you cash.
Get Maximum Profit From Two Income Types
Government mandates don't always work in our favor. But for the income plays that I'm about to show you, Uncle Sam is actually on your side helping you to lock in more income.
Today, we're going to be looking at two special classes of investments that typically pay you big bucks:
- Real Estate Investment Trusts (REITs) and
- Master Limited Partnerships (MLPs).
Both REITs and MLPs get special treatment from the U.S. government to help encourage investments in certain areas of our economy.
The REIT classification was created to help make it easier for real estate companies to get the capital needed for developments.
And the MLP classification was given special advantages to help encourage investment in U.S. energy assets.
Companies that are set up under either of these categories get to avoid paying corporate income tax.
Yep, you read that right!
Neither MLPs nor REITs are required to pay corporate tax. So when you invest in one of these companies, there are more profits available to you as an investor!
Best of all, these profits are mandated to be sent to you as an investor, which is why these setups make for such great income plays.
The Government Mandate in Action
Both MLPs and REITs are known as "pass through entities." That's because profits pass through the company and go directly to you as an investor.
The tax-free feature of these setups also comes with a government income mandate.
For both MLPs and REITs, the majority of operating earnings must be distributed to investors each year.
In most cases, these companies pay a quarterly distribution, much like a dividend, which is deposited into your brokerage account.
These distributions are then taxed, which is how the IRS eventually gets its payment from the pass through entities.
For this reason, it's best to use a taxable brokerage account for investing in these high-value income plays.
If you decide that you'd like to use a tax-advantaged account like an IRA or 401(k) retirement account, please check with your accountant first.
There may be some adverse tax consequences that you should prepare for ahead of time.
But if you use a normal brokerage account to buy shares of MLPs or REITs, you'll benefit directly from this government income mandate attached to these types of investments.
A Great Season for MLPs and REITs
As inflation picks up here in the U.S., REITs and MLPs look especially attractive.
That's because the value of real estate should continue to climb thanks to inflation -- and also thanks to a rebounding economy.
Both of those forces have also helped to push energy prices higher. And since MLPs are mostly tied to the energy market, these stocks are also trading higher and generating more income.
So when you invest in these plays, chances are good that you'll see your income grow. And you'll also see the value of your position increase as well.
That's a perfect scenario for growing your wealth while collecting more income!
If you're not already using MLPs and REITS to grow your income, I hope you'll consider adding these plays to your retirement account.
Tomorrow, I want to show you some ways to evaluate just how hard your income plays are working for you... and how to know if it's time to switch to another play to continue growing your income.
So make sure you tune in to the next issue headed your way soon!
Here's to living a Rich Retirement,
Editor, Rich Retirement Letter