Building a Personal Pension
Building a Personal Pension with Midstream Energy Infrastructure Investments
How MLPs, C-Corps, and RICs Can Strengthen Your Income Portfolio
Introduction
In today’s market, creating a reliable personal pension means focusing on assets that generate stable, high-yield income and offer growth potential. Midstream energy infrastructure—including pipelines, storage facilities, and transportation assets—can be a powerful addition to your portfolio. These investments are available through three main structures: Master Limited Partnerships (MLPs), C Corporations (C-Corps), and Regulated Investment Companies (RICs) such as ETFs and funds that blend midstream assets. Each structure provides exposure to essential, fee-based infrastructure with resilient cash flows driven by long-term contracts, not commodity price swings.
Master Limited Partnerships (MLPs)
Description: MLPs are publicly traded partnerships that pass income directly to investors (unitholders). They typically own pipelines, storage terminals, and processing facilities, earning revenue from fee-based contracts to transport oil, natural gas, and NGLs.
Tax Benefits:
· No double (corporate-level) taxation.
· 70-100% of distributions are usually tax-deferred return of capital (ROC), reducing your cost basis instead of being immediately taxable.
· Remaining income often qualifies for the 20% qualified business income deduction under current law.
· On sale, recaptured depreciation is taxed at ordinary rates, but long-term holding can defer taxes for years.
Best Account Type: Taxable brokerage accounts are preferred for MLPs. This maximizes tax-deferral benefits, as most distributions aren’t immediately taxed. In tax-advantaged accounts (traditional IRAs, Roth IRAs, 401(k)s), distributions may produce Unrelated Business Taxable Income (UBTI) above $1,000/year, triggering taxes and custodian fees. This applies to both Roth and traditional accounts. K-1 forms add some complexity, but are manageable in taxable accounts.
Pros:
· High yields (typically 7-10%).
· Significant tax deferral.
· Stable, fee-based cash flows.
Cons:
· K-1 tax reporting (more complex than 1099).
· Possible state taxes and UBTI in retirement accounts.
· Higher volatility during energy downturns.
Midstream C Corporations (C-Corps)
Description: C-Corps are traditional corporations operating midstream assets. Many former MLPs have converted to C-Corp status for broader investor access and simpler taxation.
Tax Benefits:
· Corporate tax applies; dividends are qualified and taxed at lower long-term capital gains rates (0-20%).
· No pass-through complexity; simple 1099 reporting.
· Sometimes eligible for foreign tax credits.
Best Account Type: Tax-advantaged retirement accounts (traditional 401(k)s, IRAs, Roth IRAs) are best for C-Corps. Qualified dividends and capital gains grow tax-deferred (traditional) or tax-free (Roth with qualified withdrawal), maximizing compounding. In taxable accounts, dividends are taxed annually at favorable rates, but retirement accounts are more efficient for long-term holding.
Pros:
· Simple 1099 tax reporting.
· Broader institutional ownership (index inclusion).
· Often stronger balance sheets and growth via acquisitions.
Cons:
· Lower yields than MLPs (typically 4-7%).
· Corporate tax reduces cash available for dividends.
· More exposure to natural gas trends (variable performance).
Regulated Investment Companies (RICs) in Midstream
Description: RICs—typically ETFs or mutual funds—follow investment company rules (max 25% in MLPs, remainder in C-Corps). These funds offer diversified midstream exposure without the complexities of direct MLP ownership.
Tax Benefits:
· Pass-through at fund level (no entity tax if 90%+ income distributed).
· Distributions are often qualified dividends.
· 1099 reporting; no K-1s or UBTI.
Best Account Type: Tax-advantaged retirement accounts (traditional 401(k)s, IRAs, Roth IRAs) are best for RICs. No UBTI issues, simple 1099 reporting, and tax-deferred (or tax-free in Roth) growth on distributions/reinvestment maximize efficiency. In taxable accounts, annual taxes on dividends apply, but RICs are still suitable if retirement account space is limited.
Pros:
· Diversification (MLPs + C-Corps).
· No K-1/UBTI; easy liquidity.
· Lower volatility than pure MLPs.
Cons:
· Lower yields (due to 25% MLP cap).
· Potential tracking lag or fees.
· Less pure tax deferral than direct MLPs.
Conclusion & Value-Add Insights
Diversifying across MLPs (in taxable accounts for deferral) and C-Corps/RICs (in retirement accounts for simplicity and tax efficiency) can build a robust personal pension yielding 6-8% overall, with built-in inflation hedging from rising energy demand (like LNG exports and AI data center power).
Additional Considerations
· Midstream showed resilience in 2025, with strong returns from natural gas demand despite softer oil prices.
· Risks: Interest rates, regulation, and the energy transition. Natural gas as a bridge fuel supports near-term stability.
Always consult a financial advisor for personalized advice, as tax rules can change. Data as of December 2025; market conditions fluctuate.
