Two Income ETFs Retirees Can Buy Inside a Roth IRA to Generate Tax-Free Cash for Life

The Roth IRA is arguably one of the most powerful retirement accounts available because qualified withdrawals are completely tax free. In 2026, the Roth IRA contribution limit is $7,500 for those under 50, and $8,600 for those 50 and older, with the extra $1,100 catch-up amount representing the first increase to that figure in several years.

Contributions can generally be withdrawn at any time without taxes or penalties, since they were made with after-tax dollars. Investment gains, including dividends, interest, and capital appreciation, can also come out completely tax free, provided the account has been open for at least five years and you are at least age 59½ or disabled.

Younger investors often use a Roth IRA primarily for long-term capital appreciation, and that is a sound approach. Retirees, however, may want to think differently. A Roth IRA is an ideal home for higher-yielding but tax-inefficient investments that generate ordinary income: bond funds, REITs, and certain derivative-income ETFs. Sheltering that ordinary income inside a Roth turns a structural disadvantage into a non-issue.

Here are two popular examples from JPMorgan Asset Management that fall squarely into that category.

JPMorgan Equity Premium Income ETF (JEPI)

JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) is built around two complementary strategies working in tandem.

First, the managers actively select a portfolio of large-cap U.S. companies designed to produce returns similar to the S&P 500 but with lower overall volatility. The emphasis falls on higher-quality, more defensive businesses rather than simple index tracking. JPMorgan launched JEPI in 2020 and it has grown to more than $35 billion in assets, a pace that made it one of the fastest-growing active ETF launches in history.

Second, roughly 15% of the portfolio is invested in equity-linked notes. These structured products replicate the payoff of a one-month out-of-the-money covered call strategy on the S&P 500, allowing JEPI to monetize index option premiums without writing covered calls directly on its stock holdings. The result is a thoughtful combination of lower-volatility equities and option income, all for a modest 0.35% expense ratio.

The tax drawback is real. Income generated through ELNs does not receive the favorable 60/40 treatment available to Section 1256 index options. Instead, much of JEPI’s distributions are taxed as ordinary income, making the fund relatively tax-inefficient in a taxable brokerage account.

JEPI currently carries a trailing dividend yield of approximately 8%, paid monthly, with the last ex-dividend date in early August 2026. Importantly, this is not a managed distribution policy. Monthly payouts fluctuate over time and tend to rise when market volatility increases and option premiums become more attractive.

JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) follows essentially the same blueprint as JEPI, but with a higher-risk, higher-reward profile.

It charges the same 0.35% expense ratio and actively manages a portfolio of Nasdaq-100-related stocks, using equity-linked notes to replicate an out-of-the-money covered call strategy on the Nasdaq-100. Because the Nasdaq-100 is generally more volatile than the S&P 500, option premiums tend to be larger. As of mid-2026, JEPQ has grown to approximately $39 to $40 billion in assets under management, making it one of the largest income-focused ETFs in the U.S. market. The fund carries a trailing dividend yield of approximately 11%, paid monthly. Like JEPI, the payout is dynamic rather than fixed.

The same tax considerations apply. Most distributions flow through ELNs and are therefore taxed as ordinary income when held in a taxable account. Inside a Roth IRA, however, those distributions can accumulate and ultimately be withdrawn tax free once qualified withdrawal requirements are met.

There is a meaningful tradeoff to understand. JEPQ uses a covered call strategy on Nasdaq-100 stocks to generate its income, but this structure caps upside in strong bull markets, meaning it will typically underperform QQQ during major tech rallies. Investors taking on the higher yield are also accepting heavier tech-sector concentration and greater share-price volatility relative to JEPI.

Why a Roth IRA Can Make Sense

For retirees in the 32% federal tax bracket or higher, holding funds like JEPI or JEPQ inside a Roth IRA can make a meaningful difference. An 8% distribution from JEPI held in a taxable account leaves an investor with an after-tax yield of roughly 5.4% after federal taxes alone. JEPQ’s approximately 11% distribution rate falls to around 7.5% after the same 32% federal haircut.

Inside a Roth IRA, assuming qualified withdrawals, those same distributions remain fully tax free. That lets retirees keep the entire cash flow and sidestep one of the biggest drawbacks of derivative-income ETFs: their tendency to generate ordinary income rather than more tax-efficient qualified dividends or long-term capital gains. For income-focused retirees who already hold growth assets elsewhere, these two funds offer a straightforward way to put the Roth IRA’s tax shelter to work.

Editor’s note: This article updates the JEPI distribution rate from 9.40% to approximately 8% and the JEPQ distribution rate from 11.39% to approximately 11%, reflecting trailing yields as of August 2026, and adds current assets under management figures for both funds.

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