If you and your spouse are 65 and holding the NEOS S&P 500 High Income ETF (CBOE:SPYI) for its monthly checks, you should know what the fund’s structure does to a strategy built around the 0% long-term capital gains bracket. SPYI’s roughly $6.51 annualized distribution on a $53.39 share price throws off a double-digit yield, which is why retirees own it. But if the plan for 2026 is to realize up to $146,000 in income and gains at a 0% federal rate, SPYI’s options-income machinery works against that goal in a way most holders never see on their monthly statement.
How a Couple Gets to $146,000 at Zero
The math starts with three stacked deductions and the 0% capital gains bracket. For 2026, the married-filing-jointly standard deduction is $32,200. Both spouses at 65 or older add the traditional age-65 amount for each, and the One Big Beautiful Bill layered on a new senior deduction on top of that. Add the 0% long-term capital gains threshold for joint filers, which sits at roughly $97,700 of taxable income for 2026, and a couple can pull qualified dividends plus realized long-term gains into that zero-rate zone.
Stacked together, the standard deduction, both age-65 add-ons, the OBBB senior bonus, and the 0% capital gains ceiling produce roughly $146,000 of qualified dividends and long-term gains that face no federal income tax. The catch is in the word qualified. Only distributions that are qualified dividends or long-term capital gains ride the preferential rate schedule. Ordinary-income distributions do not.
Where SPYI Breaks the Strategy
SPYI is a covered-call product. It writes index options against an S&P 500 sleeve and passes the premium income through as monthly cash. Options premium is not a qualified dividend. Depending on the fund’s tax accounting each year, distributions can land as a mix of ordinary income, Section 1256 gains, and return of capital. The provided distribution record for SPYI, which shows 48 monthly payments and a trailing 12-month total of $6.33 per share, does not itself classify tax character. A large slice of the check may be ordinary income taxed at marginal rates, falling outside the 0% rate a 65-year-old couple is trying to occupy.
SPYI also charges 0.68% annually. Its total-return profile reflects the covered-call cap: 17.18% over the past year versus 30.58% for SCHD. Selling calls trades upside for premium, which is fine if premium is what you want, but not if the premium arrives as taxable ordinary income and gives up equity appreciation you could have harvested at 0%.
A Swap That Fits the 0% Bracket
The cleaner fit is Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). It holds names like QUALCOMM at 6.74% of assets, Texas Instruments at 5.90%, and UnitedHealth at 5.09%, and pays quarterly dividends that generally meet the qualified-dividend holding-period test. Those dividends drop straight into the 0% preferential bracket for a couple sitting inside the thresholds. SCHD’s trailing yield is lower than SPYI’s on paper, but the after-tax yield gap narrows sharply, and often flips, once ordinary-income distributions from SPYI hit a return.
Investors who want a lower payout with faster growth can use iShares Core Dividend Growth ETF (NYSEARCA:DGRO) as a complement. DGRO’s expense ratio is 0.08%, versus SPYI’s 0.68%, a 60-basis-point drag that compounds against every dollar SPYI holds. DGRO’s $1.32 annualized distribution is smaller, but it is qualified, and the fund’s price appreciation feeds long-term gains a couple can then realize into the 0% bracket at their own pace.
Tradeoffs to Weigh
SPYI works well on its own terms; it is simply the wrong wrapper for this specific tax move. If the account is an IRA, the tax character does not matter and SPYI’s yield stands on its own. The 0% strategy only works in taxable brokerage accounts. Selling SPYI to buy SCHD in a taxable account can trigger its own gain, which counts against the $146,000 ceiling in the year you switch. With the 10-year Treasury at 4.74%, some couples may also decide part of their income should sit in Treasuries rather than covered-call equity, particularly for the state-tax exemption. The distribution-character issue is one of nine IRS rules that quietly cost retirees real money, which we charted in a free tax trap map.
Reading This Against Your Own Return
If SPYI lives in a taxable account and the plan for 2026 is to occupy the 0% bracket, the swap earns its keep. Move new contributions into SCHD or DGRO first, then unwind SPYI in tranches sized to keep total realized income under the couple’s ceiling. If SPYI sits in an IRA, leave it alone. If the yield is genuinely funding daily expenses and there is no room to wait for appreciation, keep enough of the position to cover the shortfall and rotate only the excess. Treat the strategy as a tax option available to you, one you can size to fit your circumstances.
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