Learn how pipeline investments may offer powerful tax deferral advantages
When it comes to retirement income, it’s not just how much you earn—it’s how much you keep after taxes. That’s why Master Limited Partnerships (MLPs), especially those in the pipeline business, have become a favorite for income-focused investors. They combine high yields with unique tax advantages that can help you keep more of your income working for you.
In this post, you’ll discover what makes MLPs so tax-friendly, and we’ll highlight four of the top pipeline MLPs that could provide steady, reliable income with powerful tax deferral benefits.
Why MLPs Can Be So Tax-Efficient
MLPs are a special type of business structure, often found in the energy infrastructure sector—particularly oil and gas pipelines. Here’s why they’re tax-friendly:
- Most of the income is considered a “return of capital”, which means it’s not taxed when received. Instead, it reduces your cost basis.
- You defer taxes until you sell the investment, often many years down the road.
- You may never owe taxes at all if you hold MLPs until death, as heirs typically receive a “step-up” in cost basis, wiping out deferred taxes.
In short: you get high income now, and the tax bill (if any) comes much later—a big win for retirees who value steady, predictable income.
4 Top Pipeline MLPs to Consider
Here are four leading MLPs that specialize in transporting energy, not producing it—making them more stable and less tied to commodity prices.
1. Enterprise Products Partners (EPD)
One of the largest and most reliable MLPs, EPD owns over 50,000 miles of pipelines and major storage facilities for natural gas, crude oil, and petrochemicals. It’s known for steady distributions, a conservative balance sheet, and more than 25 years of uninterrupted payouts. With a yield often around 7%, it’s a cornerstone choice for retirees seeking tax-advantaged income with long-term stability.
2. Magellan Midstream Partners (MMP) (Now part of ONEOK, but often still referenced)
Before being acquired by ONEOK, Magellan was a popular MLP focused on refined petroleum product pipelines. While MMP no longer trades independently, it remains a reminder of the appeal of “toll road” business models that generate predictable cash flow. Investors interested in similar exposure now turn to similar MLPs like MPLX or EPD.
3. MPLX LP (MPLX)
A midstream MLP sponsored by Marathon Petroleum, MPLX owns and operates logistics and storage assets across the U.S., including crude oil and natural gas pipelines. Known for strong cash flows and rising distributions, MPLX offers an appealing yield (often 8% or higher), supported by fee-based contracts. It’s favored by income investors seeking reliable payouts from a well-supported parent company.
4. Energy Transfer (ET)
ET operates one of the most extensive and diversified sets of midstream assets in North America. With over 120,000 miles of pipelines transporting natural gas, oil, and natural gas liquids, Energy Transfer boasts a high yield—often over 9%. After reducing its distribution in 2020, it’s since raised it back steadily, signaling improved financial health and commitment to rewarding investors.
Final Thoughts
MLPs like EPD, MPLX, and ET offer a powerful combination of:
- High, steady yields
- Reliable cash flows from essential infrastructure
- Attractive tax deferral benefits
They can be a valuable part of a retirement income strategy—especially if you want to minimize taxes while maximizing income.
Just remember: MLPs come with extra paperwork at tax time (you’ll receive a K-1 instead of a 1099), and they’re not ideal for tax-deferred accounts like IRAs. But for a taxable account, they can deliver tax-smart income for years.
This post is adapted from my book: 9% Retirement Paycheck: How to Generate Steady, Worry-Free Income for Life, available now at Amazon.com in paperback and eBook formats.
Disclaimer: This post is for informational purposes only and does not constitute tax or investment advice. Always consult with a qualified financial or tax advisor before making investment decisions. All investments carry risk.