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

The Roth IRA ranks among the most powerful retirement accounts available because qualified withdrawals are completely tax free. In 2026, the contribution limit is $7,500 for savers under 50 and $8,600 for those 50 and older. The extra $1,100 catch-up represents the first increase to that figure since SECURE 2.0 indexed it, giving late-stage accumulators a bit more room to shelter income.

Contributions can be withdrawn at any time without taxes or penalties, since they were made with after-tax dollars.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 the account holder is 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 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.

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 May 2020, and the fund has since grown to more than $45 billion in assets, placing it among the fastest-growing active ETF launches in market history.

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 combination of lower-volatility equities and option income, all wrapped inside a 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. Most of JEPI’s distributions are therefore taxed as ordinary income, making the fund relatively tax-inefficient inside a taxable brokerage account.

JEPI carries a trailing dividend yield of approximately 8%, paid monthly. The most recent ex-dividend date fell on October 1, 2026. This is not a managed distribution policy. Monthly payouts fluctuate over time, tending to rise when market volatility increases and option premiums become richer. The CBOE Volatility Index reached a 2026 high of 31.05 on March 27, briefly boosting distributions across both JEPI and its sister fund before the gauge cooled steadily through summer.

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.

JEPQ 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. JEPQ launched in May 2022 and has grown to more than $44 billion in assets, 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. Notably, JEPQ cut its October 2026 distribution to $0.57 per share from $0.705 in August, a reminder that the monthly income stream can swing meaningfully as market conditions shift.

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, those distributions can accumulate and ultimately be withdrawn tax free once the qualified withdrawal requirements are met.

There is a meaningful tradeoff to understand. JEPQ’s covered call strategy on Nasdaq-100 stocks caps upside in strong bull markets, meaning it will typically underperform a plain Nasdaq-100 index fund during major tech rallies. That said, on a trailing 12-month basis through early October 2026, JEPQ delivered a total return of roughly 19%, compared with JEPI’s approximately 9% over the same window. Information technology and semiconductor-related names dominate JEPQ’s portfolio, with NVIDIA, Apple, Microsoft, and Micron Technology among the largest positions as of the August 2026 fund fact sheet. Investors taking on the higher yield are also accepting that level of 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 intact. 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 direct way to put the Roth IRA’s tax shelter to productive use.

Editor’s note: This article updates JEPQ’s assets under management from approximately $42 billion to more than $44 billion based on current data, revises JEPQ’s trailing 12-month total return from roughly 20.7% to roughly 19% to reflect performance through early October 2026, and adds context on JEPQ’s October 2026 distribution cut to $0.57 per share from $0.705 in August.

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