Retirees Get a $12,000 Deduction in 2026. Pair It With the 14% Income Fund the IRS Barely Touches

The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) has built its reputation as the retiree’s covered-call workhorse: monthly checks, lower beta than the S&P 500, and a fee of just 0.35%. More than a million income investors hold it. But JEPI’s payouts flow mostly as ordinary income through equity-linked notes, and in 2026, that structure collides with a new tax lever for people 65 and older. The $12,000 senior deduction for couples (or $6,000 for a single filer) phases out above $150,000 in modified adjusted gross income ($75,000 for singles), so every dollar JEPI reports as ordinary interest counts against that threshold. A different pair of high-income funds sidesteps most of that damage.

Why JEPI Falls Short for the 65-Plus Deduction

The income engine behind JEPI is an ELN portfolio that mirrors an S&P 500 covered call payoff, with the premium collected in those notes treated as ordinary income at the investor’s marginal tax rate. On a $57.45 share price with a trailing 12-month distribution of $4.58, that works out to roughly an 8% yield, all of which lands on line 8 of a 1040.

For a couple sitting near the $150,000 MAGI cliff, those extraordinary distributions can vaporize part of the new senior deduction and push the effective tax cost well above the stated rate. Total return on JEPI has also weakened. The fund is up 5.05% year-to-date, and its one-year total return is 10.5%. Investors are paying full ordinary rates on distributions from a fund that has trailed the broad market in 2026.

The Swap: NEOS QQQI and SPYI

The NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) and its S&P 500 sibling, the NEOS S&P 500 High Income ETF (CBOE:SPYI), replace ELNs with index options on the SPX and NDX. Those contracts fall under Section 1256 of the tax code, which taxes gains at a blended 60% long-term / 40% short-term rate regardless of holding period. NEOS also layers in tax-loss harvesting and typically classifies a large share of monthly distributions as a return of capital, which is not currently taxable but reduces cost basis. For a retiree threading the MAGI needle, both effects reduce reported income.

The yields are competitive. QQQI paid $7.62 per share over the trailing 12 months at a price of $55.15, a distribution rate of near 13.81%. SPYI ran $6.31 over the trailing 12 months at a $54.14 share price, or roughly 11.52%. That is 300 to 600 basis points more headline yield than JEPI, delivered through a structure that reports less taxable income per dollar received.

Performance Backs the Structure

Both funds have held NAV while paying these distributions. QQQI is up 11.17% year-to-date and 20.69% over the past year. SPYI is up 10.36% YTD and 19.8% for one year. Both roughly doubled JEPI’s total return over the same windows while paying more cash.

The tradeoff is fees: both NEOS funds carry a 0.68% expense ratio, roughly double JEPI’s. On a $100,000 position, that gap runs about $330 a year, a rounding error next to the tax swing on a five-figure distribution stream. SPYI ended May with $6.9 billion in net assets, so liquidity is no longer a concern.

Choosing Between the Two, and Making the Move

In a taxable account, selling JEPI can trigger capital gains, so netting the sale against a loss elsewhere or staging the swap across two tax years is worth modeling. Inside an IRA or 401(k), the tax argument mostly evaporates, and JEPI’s lower fee reasserts itself. For a couple 65+ with MAGI near the $150,000 phase-out, the numbers on a taxable brokerage account favor the NEOS pair.

What to Do From Here

The senior deduction rewards investors who control what appears on their tax return, not just what appears in their brokerage account. JEPI remains a competent income fund, but its distribution character works against the 2026 rules. Reviewing 1099s from the prior year, running a projected MAGI, and deciding whether to rotate part or all of a JEPI position into QQQI, SPYI, or both is a concrete step retirees can take before year-end distributions are declared.

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