From 24/7 Wall St. · Chris Lange · · 1m
Roth Alternative for Tax Savings
A $750,000 dividend portfolio loses $13,920 yearly to taxes without a Roth conversion.
In brief
A $750,000 dividend portfolio loses $13,920 yearly to taxes without a Roth conversion. Taxable BDCs and REITs cost $13,920 annually in federal taxes at 24% bracket versus Roth IRA savings. Originally reported by 24/7 Wall St..
Tax Cost of Dividend Portfolios
A $750,000 portfolio split evenly across three high-yield stocks loses $13,920 yearly to federal taxes in taxable accounts.
Roth IRA Advantage
Roth IRA avoids $13,920 annual tax cost, saving $139,200 over ten years with no growth.
High-Yield Stocks Example
Ares Capital, Main Street Capital, and Agree Realty each pay dividends taxed as ordinary income at 24% federal bracket.
Tax Bracket Impact
At 24% federal tax bracket, $44,080 annual income becomes $44,080 net in Roth versus $30,160 in taxable accounts.
Compounding Effect
Reinvested at 4%, $13,920 annual savings grows to $415,000 over twenty years without price appreciation.
Tax Savings Strategy
Convert high-yielding taxable BDCs and REITs to Roth IRA before tax filing to reduce annual tax costs.
The essence
Taxable BDCs and REITs cost $13,920 annually in federal taxes at 24% bracket versus Roth IRA savings.
