A $750,000 Dividend Portfolio Could Lose $13,920 A Year To Taxes. Here’s The Roth Alternative

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At the 24% federal bracket, a $750,000 portfolio split evenly across three high-yield stocks returns about $58,000 in dividends a year. In a taxable account, the IRS takes $13,920 of that. Most of what business development companies (BDCs) and REITs pay out is taxed as ordinary income. They don’t get the 0%, 15%, or 20% qualified dividend rates, so these stocks have more to gain from a Roth than typical dividend payers. For 2026, the 24% rate applies to taxable income over $105,700 for single filers ($211,400 for married couples filing jointly).

Roth Versus Taxable: $13,920 a Year on One Portfolio

The example puts $250,000 into each stock, using current prices and annualized dividends.

This translates to an annual Roth advantage of $13,920, or $139,200 over 10 years with no growth assumed.

Ares Capital

Ares Capital (NASDAQ:ARCC) pays $0.48 a quarter. Its debt investments yield 10.3% at amortized cost across 619 companies, and that interest passes to shareholders as ordinary income. Second-quarter core earnings came in at 47 cents per share, a penny short of the payout. Management said that “over the last 12 months, core earnings have exceeded our regular dividend,” and the company has $1.38 per share of excess income in reserve.

Main Street Capital

Main Street Capital (NYSE:MAIN) pays $0.265 a month plus supplemental dividends, most recently $0.30. Supplementals make the taxable bill uneven from year to year. Distributable net investment income before taxes was $1.08 per share in the second quarter, against $0.795 in regular quarterly dividends. Third-quarter guidance calls for at least 97 cents.

Agree Realty

Agree Realty (NYSE:ADC) raised its monthly dividend to $0.271 from $0.267. Because the payout keeps rising, the tax drag rises with it. In the second quarter, the dividend used 70% of adjusted funds from operations (AFFO). Full-year AFFO guidance is $4.57 to $4.59 per share. Taxable holders can use the qualified REIT dividend deduction under 26 U.S.C. § 199A(e)(3), which narrows Agree’s gap somewhat. The tables above use the full ordinary rate.

Bracket Multiplier: How Your Tier Changes the Gap

In 2026, the 37% rate starts above $640,600 for single filers. At that level, the same three stocks lose $21,460 a year to federal tax.

Compounding Turns the Annual Gap Into a Six-Figure Cost

The $13,920 stays invested in a Roth. Reinvested at a conservative 4%, it grows to about $167,000 after 10 years and roughly $415,000 after 20. Without reinvestment, the 20-year figure would be $278,400. No price appreciation or dividend growth is assumed. This shows the permanent cost of keeping these three positions in a taxable account at the 24% bracket.

What to Do Before Your Next Tax Filing

• Find every BDC and REIT among your taxable holdings. Multiply each position’s annual dividend by your marginal rate to get its current tax cost.
• Before deciding that a Roth conversion costs more than it saves, compare the single conversion tax on these specific positions with the annual savings shown in the bracket table. The low-tax years after you stop working and before your first RMD are usually when the math works best, a window we sized up in a free Roth guide here.
• If your highest-yielding holdings are taxable, model a staged conversion that starts with ordinary-income payers like Ares Capital and Main Street. Keep in mind that Agree Realty’s REIT dividends get partial relief through the Section 199A deduction.

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