A $1 million high-yield dividend portfolio generates $60,000 tax-free in a Roth IRA versus $45,600 net in a taxable account at 24% federal rate.
A $1 million portfolio of high-yield dividend stocks produces $60,000 in annual income, which remains fully tax-free inside a Roth IRA. In a taxable account at the 24% federal bracket, the same income triggers a $14,400 annual tax bill, leaving $45,600 net for the investor.
The portfolio consists of ten high-yield names, including Ares Capital ($0.48 quarterly), Main Street ($0.26 monthly plus $0.30 supplemental), and EPD ($0.55 quarterly). Over a decade with no growth, the taxable account incurs a $144,000 cumulative tax cost compared to zero in the Roth.
The tax advantage scales with marginal rates, amplifying benefits for higher-income investors holding ordinary-income distributions.