One Dollar of Extra Income Costs a Retired Couple $2,300 a Year in Medicare Premiums. These Funds Pay Without Crossing the Line

If you own JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) for the monthly income, you have plenty of company. JEPI became the default equity income holding for retirees who want covered-call income layered on their S&P 500 exposure. For a couple sitting near a Medicare income line, though, JEPI carries an overlooked cost. Its distributions arrive as ordinary income and flow dollar for dollar into modified adjusted gross income. Cross the threshold and your net income actually shrinks due to higher premiums. A quieter set of funds pays similar cash without the same MAGI drag.

IRMAA Cliff Punishes One Extra Dollar

Medicare’s Income-Related Monthly Adjustment Amount uses MAGI from two years back. For a married couple filing jointly in 2026, staying at or below $218,000 keeps the Part B premium at $202.90 a month and adds zero to Part D. Cross that line by a dollar, and Part B jumps to $284.10 a month while Part D adds $14.50 per person, per month. Across two spouses over twelve months, that adds up to $2,298 in additional annual premiums triggered by a single extra dollar of MAGI. The cliff repeats at each higher bracket.

JEPI’s distributions, sourced largely from equity-linked notes, land as ordinary income at a shareholder’s marginal rate. In an IRA the character is irrelevant. In a taxable account within a few thousand dollars of an IRMAA threshold, ordinary income is the wrong kind for MAGI management.

SPYI and QQQI Deliver Similar Cash With Different Tax Character

The NEOS S&P 500 High Income ETF (CBOE:SPYI) and the NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) run a data-driven index-option overlay on the S&P 500 and Nasdaq-100. Two features matter most for the IRMAA-conscious retiree. First, the funds write SPX and NDX index options, which qualify as Section 1256 contracts taxed at a blended 60% long-term, 40% short-term rate regardless of holding period. Second, NEOS classifies a large share of distributions as return of capital, reducing cost basis instead of hitting the 1099-DIV as taxable income. QQQI’s Form 8937 for the fiscal year ended May 31, 2025 shows monthly distributions running roughly 94% to 99% return of capital.

SPYI paid $6.33 per share over the trailing twelve months and is running at a $6.51 annualized forward rate on a $53.67 share price, paid monthly. The trade-off is real. Return of capital lowers your basis, so more shows up as capital gain when you eventually sell. Yet capital gains are realized on your schedule, and Section 1256 treatment softens the rate you pay. On the IRMAA calendar, that flexibility is the whole point.

JPMorgan’s Own Response to JEPI Comes in ROCY and ROCQ

JPMorgan itself launched JPMorgan Equity Premium Yield ETF (NASDAQ:ROCY) and JPMorgan Nasdaq Equity Premium Yield ETF (NASDAQ:ROCQ) to deliver tax-deferred yield through return of capital, using index options taxed under Section 1256. The equity sleeve holds the same stocks JEPI shareholders already know. ROCY’s largest positions are Apple at 6.57% and Alphabet at 5.22%, alongside NVIDIA and Microsoft. Since inception in March, ROCY has returned 14.77% and ROCQ 15.53%, so principal has grown alongside payouts rather than being eroded to fund them.

The swap is close to one-for-one for a JEPI owner. ROCY replaces the S&P-linked equity income, while ROCQ handles the Nasdaq side. QQQI has the longer public track record on return-of-capital classification. ROCY and ROCQ are newer but come from the same asset manager already running JEPI, and their prospectuses target the same distribution-in-excess-of-earnings mechanism that produces return of capital.

BOXX for Cash That Does Not Need to Pay Now

The Alpha Architect 1-3 Month Box ETF (CBOE:BOXX) takes the idea further. It uses S&P 500 box spreads to replicate short-duration Treasury-like returns and, by design, pays no distributions. Gains accrue inside the NAV. BOXX returned 4.03% over the past year and 2.68% year-to-date, and now holds $12.7 billion in net assets. For the money-market or T-bill portion of a retiree’s portfolio, BOXX generates zero 1099 income and zero IRMAA impact until shares are sold.

Practical Path Before Year-End

JEPI still works inside a Roth or traditional IRA, where distribution character does not matter, and the fund keeps its low fee and deep liquidity. In a taxable account near an IRMAA threshold, the sequence is straightforward. Trim the JEPI position with an eye on embedded capital gains. Replace equity-income exposure with SPYI or ROCY on the S&P side, or QQQI or ROCQ on the Nasdaq side. Move short-duration cash into BOXX. Model the two-year IRMAA lookback because 2026 MAGI sets 2028 premiums (the surcharge is one of several Medicare traps we mapped in a free guide here). A tax professional should walk through basis tracking on return-of-capital funds and whether a partial rotation makes more sense than a full move.

Right Fund, Wrong Account

Whether JEPI belongs in a portfolio and where it belongs are separate questions. Held in a taxable account within a few thousand dollars of a Medicare cliff, the same yield, when delivered through Section 1256 options and return of capital, is worth roughly $2,300 a year in avoided premiums for a couple. That savings comes from tax structure, not investment performance.

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