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In the 24% federal bracket, a portfolio yielding $42,000 in dividend income owes about $10,080 to the IRS each year. Inside the Roth, that number drops to zero. The math is the same on both sides of the fence. The only variable is the wrapper.
This is the entire premise of asset placement: Put the highest-yield, ordinary-income-character distributions inside a Roth, and the federal tax line on those dollars disappears permanently.
Tax Delta: Roth vs taxable at 24%
A $500,000 basket targeting about an 8% blended yield generates about $42,000 of gross annual income. In an account taxable at 24%, that’s about $31,920 after-tax. In a Roth, the fee is the entire $42,000. The annual delta is approximately $10,080. With ten years of no growth and no reinvestment, that difference totaled more than $100,000 in never-paid taxes.
basket
The yields below are based on recent delivery data. The allocation leans toward high-yield sleeves (ARCC, JEPQ, JEPI) to reach the 8% blended yield needed for the $42,000 headline figure. Names with lower yields (MO, EPD, BTI, O) are given less importance accordingly.
- Ares Capital (NASDAQ:ARCC | ARCC Price Prediction): 10% yield, $0.48 quarterly. bdc Paying ordinary-income dividends. Highest priority Roth candidate. Q1 2026 NII of $0.55/share comfortably covers the $0.48 dividend.
- main road capital (NYSE:Main): 6% yield. Monthly $0.26 regular plus $0.30 quarterly supplement, now the 19th consecutive quarter of supplements. ordinary income.
- JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ): 13% yield. Option-premium income is normal. Ideal Roth Holding.
- JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI): 8% yield. Ordinary-income mechanics similar to JEPQ on the S&P 500 sleeve.
- MPLX (NYSE:MPLX): 8% yield. MLP Issuing K-1; UBTI considerations apply inside an IRA, depending on the custodian and ownership level. Delivery increased to $1.0765 per unit quarterly.
- Altria (NYSE:MO): 6% yield, $1.06 quarterly. Qualified dividend status, so there is less Roth urgency, but the yield still benefits from the shelter.
- Enterprise Product Partners (NYSE: EPD): 6% yield. MLP Issuing K-1; The same UBTI considerations as the MPLX apply inside an IRA.
- British American Tobacco (NYSE:BTI): 5% yield. The 2026 quarterly delivery rose 12% to $0.834851. With the 15% UK ADR withholding that the Roth structure can’t fix, it’s a worthwhile drag worth flagging.
- realty income (NYSE:O): 5% yield, 114th consecutive quarterly increase and 670th consecutive monthly dividend. REIT distributions are ordinary income.
bracket multiplier
The same $42,000 of gross dividend income. Different brackets. separate loss.
| bracket | federal tax | taxable net | roth net | annual roth benefit |
|---|---|---|---|---|
| 22% | $9,240 | $32,760 | $42,000 | $9,240 |
| 24% | $10,080 | $31,920 | $42,000 | $10,080 |
| 32% | $13,440 | $28,560 | $42,000 | $13,440 |
| 37% | $15,540 | $26,460 | $42,000 | $15,540 |
For context, the 10-year Treasury yield is 5%, so the basket yield sits about 373 basis points above the risk-free benchmark.
Compounding Insights
The annual delta is only the first layer. Reinvested inside a Roth at a conservative 5% rate, the 24%-bracket investor’s annual tax savings of $10,080 grows to approximately $127,000 over ten years and approximately $333,000 over twenty years. None of this is taxed on the way in, on the way out, or on the way out. This is the permanent cost of keeping this basket in a taxable account.
risks worth naming
- Distributions are ordinary income. Roth sheltering is the reason this basket works.
- EPD and MPLX issue K-1s with UBTI considerations inside the IRA depending on the custodian and ownership level.
- BDCs ride the credit cycle. ARCC non-collection increased from 1.8% at year-end 2025 to 2.1% in Q1 2026.
- JEPI and JEPQ limits increased through written call. The JEPI returned 8% over the past year while the JEPQ tracks the Nasdaq more aggressively.
- Concentration in one income theme exposes the portfolio to a rate or credit shock, which affects multiple levels simultaneously.
What to do
- If any BDCs or REITs in this basket are sitting in a taxable account, calculate the annual tax cost in your bracket before the next filing.
- Model a phased Roth conversion that starts with ordinary-income names (ARCC, MEN, JEPI, JEPQ, O) before qualified-dividend names.
- Confirm with your custodian whether it is appropriate to hold MLPs (EPD, MPLX) inside an IRA according to UBTI rules before adding them to the Roth sleeve.