Easy Retirement Income Without the Extra Paperwork


Photo credit: Kinder Morgan

Master limited partnerships pay investors very well, but that extra income comes with an extra headache come tax time. The Form K-1 these entities give their investors typically arrive toward the end of tax time and are a bit more complex to understand. While these forms add only a few minutes to your tax prep time, you can avoid them altogether by simply investing in a different entity.

For example, instead of investing in LINN Energy (NASDAQ: LINE  ) and waiting for the arrival of the Form K-1 each year, you could have invested in LinnCo (NASDAQ: LNCO  ) . While LINN Energy owns thousands of oil and gas wells around the U.S., LinnCo's only assets are its ownership of units in LINN Energy. LinnCo investors get the benefit of LINN Energy's business model without the added tax headache at the deadline each year.

Meanwhile, a general partner holding company like Kinder Morgan (NYSE: KMI  ) takes that relationship to a different level. Not only does Kinder Morgan own a substantial amount of the units of its two MLPs, but it also owns the incentive distribution rights. Those rights enable Kinder Morgan's investors to see supercharged dividend growth without the tax headache of the MLPs.

I've created the following slide show to help you understand the differences between owning LINN Energy and LinnCo as well as Kinder Morgan and its two MLPs. The slide show should help get you started on adding some easy retirement income to your portfolio without adding any extra paperwork to your plate. 

How to get even more income during retirement
That said, the headaches of investing in MLPs can be well worth it. These companies can really boost your retirement income. That's why our retirement experts have given their insight on this simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 24, 2014, at 2:48 PM, timmnsa wrote:

    No K-1 for Kinder Morgan Management LLC (KMR) either; so it is suitable for retirement accounts. Dividends are paid in shares, and the yield is currently about 7.6%.

    Of course, capital appreciation and dividend growth are perhaps more likely with KMI.

    Already overweight on energy sector, but KMI and KMR are both on my watch list.


  • Report this Comment On May 25, 2014, at 6:00 PM, Lou1s wrote:

    Although I own a few shares of LINE, the majority of my holdings are in LNCO. I also have holdings in BBEP, QRE and VNR. Can't wait for those 3 MLP's go the way of LNCO.

  • Report this Comment On May 26, 2014, at 12:25 PM, warrenc2 wrote:

    The K1 is only the beginning of the problems with MLPs. What about state taxes? With an MLP you own income generating assets in states where you are not a resident. Each State the pipeline goes through is entitled to a cut. How do you determine the cut for each state? Does the MLP do that for you? I notice all these posts on MLPs avoid the state tax issue and often have an explicit disclaimer with the old saw about consulting you tax adviser - bummer if you have to consult a tax adviser. My experience has been that states are worse than the IRS if you have tax problem with them.

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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Related Tickers

9/3/2015 11:09 AM
KMI $31.58 Up +0.27 +0.86%
Kinder Morgan CAPS Rating: *****
LINE $3.65 Up +0.16 +4.59%
Linn Energy, LLC CAPS Rating: ***
LNCO $3.01 Up +0.05 +1.77%
Linn Co, LLC CAPS Rating: ***