The $116,430 Roth IRA Advantage Most Dividend Investors Are Missing

At the 24% bracket, $50,000 of dividends taxed as ordinary income sends $12,000 to the IRS every year. REITs and business development companies (BDCs) generate just that kind of income, so for retirees deciding where to hold them, the choice of account changes how much cash they actually keep.

Roth Versus Taxable: $11,643 a Year on $600,000

A $100,000 investment goes into each of six names at current yields. Payers of ordinary income are taxed at 24%. Payers of qualified dividends face a 15% rate, one of the 0%, 15%, or 20% qualified rates. Figures are federal only and exclude state tax and the net investment income tax. In 2025, the 24% bracket covered $103,351 to $197,300 for individuals and $206,701 to $394,600 for joint filers.

The Roth advantage comes to $11,643 a year, or $116,430 over 10 years with no growth assumed.

Ordinary-Income Payers Get the Biggest Lift

• FS KKR Capital (NYSE:FSK | FSK Price Prediction) yields 19.8%. Most BDC distributions are taxed as ordinary income, and at 24% this position only costs $4,752 a year in a taxable account. Keep the risk in view, though: the quarterly payout was $0.70 through 2025 and is now $0.44. Management says “we expect our quarterly distribution level will fluctuate.”
• Starwood Property Trust (NYSE:STWD) yields 15.1% on a $0.48 quarterly dividend that has stayed flat since 2014. Much of that yield comes from a falling share price: the stock is down 24.38% year to date.
• Iron Mountain (NYSE:IRM) yields 2.95%. Its REIT dividends are generally taxed as ordinary income, and the quarterly payout has risen to $0.864. A 199A write-off can reduce the rate on REIT dividends in a taxable account.

Qualified Payers Carry a Smaller Edge

• Enbridge (NYSE:ENB) yields 8.22%. Because Canada has a qualifying tax treaty with the U.S., its dividends qualify for the lower rate, and the Canadian withholding tax generally does not apply inside a Roth under that treaty. Management mentions 31 consecutive years of dividend increases.
• British American Tobacco (NYSE:BTI) yields 6.02%. The United Kingdom is also a treaty country, so its dividends are qualified, and the UK does not withhold on dividends paid to U.S. holders.
• Williams Companies (NYSE:WMB) yields 2.82% and pays qualified dividends, which places it lowest on the Roth priority list.

Your Tax Bracket Decides How Much You Save

The same portfolio appears below at each bracket. The 37% row assumes a 20% qualified rate.

The ordinary-income group of FS KKR, Starwood, and Iron Mountain makes $37,850 of the gross income. That group drives about the entire increase as brackets rise.

Compounding Turns $11,643 Into $346,706

If the annual difference earns a conservative 4% with reinvestment and no share price appreciation, it grows to $139,787 after 10 years and $346,706 after 20 years. Without reinvestment, the 20-year figure would be $232,860. That is the cost of keeping these stocks in a taxable account.

A Roth wrapper completely changes the tax on a payout, and the payout itself is just as safe or unsafe as before. FS KKR’s non-accruals are 3.8% of fair value, and its NAV slipped from $18.83 to $18.30 last quarter. A distribution cut costs you income in any account.

Three Moves Before Your Next Tax Filing

1. Get out your Form 1099-DIV and compare box 1a with box 1b. The gap between them is your ordinary-dividend exposure. Multiply it by your bracket to see what you owe each year.
2. The BDC and mortgage REIT positions have the largest tax drag in a phased Roth conversion. The low-tax years between your last paycheck and your first RMD are usually the cheapest time for conversions, the whole subject of our free Roth window guide. Converted amounts have their own 5-year period for the 10% additional tax.
3. Payout safety matters in any account. Distribution trends, NAV, and non-accruals show whether the income a Roth shelters is likely to last.

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