Quick Read
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Ares Capital and Main Street Capital pay ordinary-income dividends, so a Roth saves $2,930 and $1,670 a year on $125,000 positions.
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Held in a taxable account at the 24% bracket, this dividend portfolio hands the IRS about $9,000 of its $44,600 yearly payout.
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Reinvested at 4%, the $9,000 annual Roth advantage grows to roughly $269,000 over 20 years.
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Read More: Learn 7 ways to generate income with a $1,000,000+ portfolio (sponsor)
Split $750,000 equally across six high-yield stocks and, at current prices, the portfolio pays about $44,600 in annual dividends. In a taxable account at the 24% bracket, roughly $9,000 of that goes to the IRS every year.
Six Holdings and the Tax Bill Each One Creates
Each position gets $125,000. Each yield is the forward annual distribution divided by the current share price. BDC and REIT payouts are taxed at the 24% ordinary rate, which in 2026 applies to single filers with taxable income over $105,700 ($211,400 for married couples filing jointly). Qualified dividends are taxed at the 15% rate under 26 U.S.C. § 1(h)(1)(C).
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If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
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Ares Capital( NASDAQ:ARCC ): 9.77% yield on a $1.92 forward distribution. Because it is a BDC, its payouts are taxed as ordinary income, so holding it in a Roth saves $2,930 a year. That is the biggest saving in the portfolio. On the October call, CEO Kort Schnabel said the dividend "appropriately reflects the underlying earnings power of the business."
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Main Street Capital( NYSE:MAIN ): 5.57% on its regular $0.27 monthly dividend. The Roth saves $1,670 before considering its recurring $0.30 extra payouts, which would increase the savings.
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Realty Income( NYSE:O ): 5.44% on a $3.258 annual rate. In September, it announced its 116th consecutive quarterly increase. REIT payouts are ordinary income, and the Roth saves $1,630.
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Altria Group( NYSE:MO ): 5.67% on $4.44 a year after a 4.7% raise. Because its dividends are qualified, the Roth saves $1,060.
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Verizon Communications( NYSE:VZ ): 6.08% on $2.83 a year. Because the dividends are qualified, the Roth saves $1,140.
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Williams Companies( NYSE:WMB ): 3.12% on $2.10, with guidance calling for 2.47x dividend coverage. A Roth saves $590, the lowest amount of the six.
ARCC, MAIN and O hold half the money but create $6,230 of the tax bill, or 69%. These three gain the most from sitting in a Roth.
Roth Versus Taxable: A $9,000 Gap Every Year
| 24% Bracket |
Roth IRA |
Taxable |
|---|---|---|
| Gross Income |
$44,600 |
$44,600 |
| Tax Cost |
$0 |
$9,000 |
| Net Income |
$44,600 |
$35,500 |
Over 10 years, with no new money and no growth, the gap totals $90,200. Qualified Roth distributions "shall not be includible in gross income" under 26 U.S.C. § 408A(d)(1), so the Roth figure stays the same when you take the money out.
Bracket Multiplier: Top Earners Give Up $13,300 a Year
A 15% rate applies to qualified dividends through the 32% bracket and 20% in the 37% bracket.
| Bracket |
Taxable Net Income |
Annual Roth Benefit |
|---|---|---|
| 22% |
$36,100 |
$8,500 |
| 24% |
$35,500 |
$9,000 |
| 32% |
$33,500 |
$11,100 |
| 37% |
$31,200 |
$13,300 |
Going from 22% to 37% adds about $4,800 a year to the cost of owning these stocks outside a Roth. Almost all of that extra comes from the ordinary-income payers.
Compounding Turns $9,000 a Year Into $268,700
Reinvest the annual $9,000 at a conservative 4%, which is below the 4.95% 10-year Treasury yield. The benefit then grows to about $108,300 after 10 years and $268,700 after 20. Without compounding, the 20-year total is $180,500. These figures assume no share price gains. They show the long-term drag from owning these positions outside a Roth at 24%, and that cost grows every time a holding raises its payout.
Plug your own bracket and reinvestment rate into the math:
Three Steps Before Your Next Tax Filing
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On your 1099-DIV, split ordinary dividends from qualified ones. Multiply the ordinary amount by your marginal rate to find what your BDCs and REITs really cost you in tax.
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If you have both a Roth and a taxable account, compare a location swap: ARCC, MAIN and O in the Roth, and qualified payers like MO, VZ and WMB in the taxable account, where the 15% rate already limits the tax hit.
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If you hold a traditional IRA, model a Roth conversion in stages, starting with the ordinary-income payers. The low-tax years between your last paycheck and your first RMD tend to be the least expensive time to do it, a window we sized up in a free Roth guide here. Compare the one-time conversion tax with savings like the $2,930 a year on a $125,000 ARCC position before deciding the upfront cost is too high.
Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio
If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)
Contact editorial@247wallst.com for any questions or corrections.
