[USER]

Question on income ETFs within an IRA. I’m 45. If I bought 1 million dollars worth of JEPQ, I think I’m reading it right that it would pay roughly $9600/mo in dividends?

How is that taxed if I were to withdraw that dividend amount now at age 45? Is it the ordinary income rate?

I know I’d be hit with the 10% penalty, but wasn’t sure how it’s taxed …

[Eric]

Withdrawals are taxed as regular income plus the 10% penalty you mentioned. So, if your W2 income places you in (for example) the 24% tax bracket you would pay 10% + 24% on it and net keep 66%.

Note it doesn’t matter whether that money comes from appreciation, dividends, etc.

Just whatever the size of the withdrawl is.

You could avoid the 10% penalty by starting up 72t regular withdrawals (need a cpa) but then your locked in to taking that exact amount out each year until 59.5

[Mark]

Traditional IRAs are good at converting long term capital gains (and/or dividend income) into ordinary income.

It’s tough (for me) to see my appreciated stock holdings in my traditional IRA knowing it will all be ordinary income when I sell and withdraw the funds.

The most ridiculous thing to buy in a traditional IRA would be a tax free muni bond.

[James]

Early withdrawals from IRAs are subject to ordinary income taxes + 10% penalty.

The fact that the amounts were derived from dividends only matters in non-IRA accounts.

[Angelo]

Withdrawals are ordinary income. I highly recommend you not chase income ETF.

Growth is more efficient long term

[Author]

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