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. For 2026, investors can contribute up to $7,500, while those age 50 and older can contribute $8,600 thanks to the catch-up contribution.

Contributions can generally be withdrawn at any time without taxes or penalties because they were made with after-tax dollars. Investment gains, including dividends, interest, and capital appreciation, can also be withdrawn completely tax free provided the account has been open for at least five years and you’re at least age 59½ or disabled.

Many younger investors use their Roth IRA primarily for long-term capital appreciation, and that’s a perfectly sensible approach. Retirees, however, may want to think differently. A Roth IRA can be an ideal place to hold higher-yielding but tax-inefficient investments that generate ordinary income, such as bond funds, REITs, and certain derivative-income ETFs.

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

JPMorgan Equity Premium Income ETF (JEPI)

The JPMorgan Equity Premium Income ETF (JEPI) is built around two complementary strategies.

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 is on higher-quality, more defensive businesses rather than simply tracking the index.

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 relatively modest 0.35% expense ratio.

The drawback is taxes. Income generated through ELNs does not receive the favorable 60/40 tax 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.

Currently, JEPI offers a 9.40% distribution rate, calculated by annualizing its most recent monthly distribution. 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)

The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) follows essentially the same blueprint as JEPI, but with more risk and reward.

It charges the same 0.35% expense ratio, actively manages a portfolio of Nasdaq-100-related stocks, and uses 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. That translates into a higher current 11.39% distribution rate, although, like JEPI, the payout remains dynamic rather than fixed.

The same tax considerations apply. Most distributions are generated through ELNs and therefore are generally 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.

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. A 9.40% distribution from JEPI held in a taxable account could leave an investor with an after-tax yield of roughly 6.39% after federal taxes alone. Likewise, JEPQ’s 11.39% distribution rate falls to approximately 7.75% after a 32% federal tax.

Inside a Roth IRA, assuming qualified withdrawals, those same distributions remain fully tax free. That allows retirees to keep the entire cash flow while avoiding one of the biggest drawbacks of some derivative-income ETFs: their tendency to generate ordinary income instead of more tax-efficient qualified dividends or long-term capital gains.

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