At the 24% bracket, a $500,000 portfolio split evenly across four high-yield stocks produces about $60,130 in annual dividends and sends roughly $13,780 of it to the IRS every year. If the same four positions sit in a Roth IRA, that $13,780 stays in the account.

The four names are Altria (NYSE:MO), Ares Capital (NASDAQ:ARCC), AGNC Investment (NASDAQ:AGNC), and Starwood Property Trust (NYSE:STWD). At current prices, the equal-weight mix yields about 12.0%, and three of the four pay distributions taxed as ordinary income. That is where Roth location pays off most.

Roth Versus Taxable: $500,000 Split Four Ways

Each stock gets a $125,000 position. The tax math uses the 24% ordinary rate for the business development company (BDC) and the two mortgage real estate investment trusts (REITs). Altria’s dividends are qualified, so they’re taxed at the 15% capital gains rate under 26 U.S.C. § 1(h)(1)(C), which covers most filers in the 24% bracket.

Stock Current Yield Annual Income Tax in Taxable (24% Bracket) Tax in Roth Altria (MO) 5.8% $7,260 $1,090 $0 Ares Capital (ARCC) 9.8% $12,280 $2,950 $0 AGNC Investment (AGNC) 16.5% $20,570 $4,940 $0 Starwood Property Trust (STWD) 16.0% $20,020 $4,800 $0 Scenario Gross Income Tax Cost Net Income Taxable account $60,130 $13,780 $46,360 Roth IRA $60,130 $0 $60,130

That works out to a Roth advantage of $13,780 a year. Over 10 years, with no new contributions and no growth assumptions, the gap reaches $137,780. Ordinary-income payers account for $52,870 of the portfolio’s gross income. The figures use the full marginal rate on the REITs. The Section 199A deduction for a “qualified REIT dividend” can lower the effective rate on AGNC and Starwood, so treat those rows as the maximum drag. State income taxes would add to it.

Four Stocks Built for Roth Placement Ares Capital: 9.8%

Ares Capital pays $0.48 quarterly, or $1.92 a year, on a $19.54 share price. BDC distributions are primarily ordinary income, which means most of it is taxed at your top marginal rate when held in a taxable account. Management expressed “confidence in the current level of our regular quarterly dividend,” though non-accruals rose to 2.4% from 1.8% at year-end 2025.

AGNC Investment: 16.5%

AGNC pays $0.12 monthly on an $8.75 share price. That’s the biggest ordinary-income stream in the portfolio, so it has the largest single tax bill. CEO Peter Federico said, “Our dividend continues to be well-aligned with the economics of our business,” but tangible net book value per share fell to $7.13 in Q3, down 16.9%.

Starwood Property Trust: 16.0%

Starwood pays $0.48 quarterly on an $11.99 share price, and its commercial mortgage REIT distributions are taxed as ordinary income. The high yield partly reflects a 27.06% year-to-date stock decline, and Q3 distributable earnings of $0.31 per share came in below the payout.

Altria: 5.8%

Altria’s annualized dividend is $4.44 after a 4.7% increase in August, its 61st dividend increase in 57 years. Its dividends are qualified, which makes it the lowest Roth priority of the four. Even so, the company targets mid-single-digit annual dividend growth through 2028, so the taxable bill grows each year the shares stay outside a Roth.

Your Bracket Sets the Size of the Roth Advantage

The portfolio and its $60,130 of gross income stay the same at every bracket. Only the tax take changes. Altria is taxed at 15% in the 22% through 32% brackets and at the 20% qualified rate in the top bracket.

Bracket Taxable: A top-bracket investor gives up $21,010 a year on these four positions, compared with $12,720 at the 22% bracket. Since almost all of the income is ordinary, nearly every step up in bracket goes straight into the tax bill.

Bracket Taxable Net Income Annual Roth Advantage 22% $47,410 $12,720 24% $46,360 $13,780 32% $42,130 $18,010 37% $39,120 $21,010 Compounding Turns $13,780 a Year Into $410,300

Simply adding up the annual delta understates the cost. Inside a Roth, the money saved on taxes each year gets reinvested and continues compounding tax-free. If the 24% bracket delta of $13,780 is reinvested at a conservative 4% a year, with no stock price appreciation and no dividend growth assumed, the gap reaches:

• 10 years: $165,430, compared with $137,780 without reinvestment
• 20 years: $410,300, compared with $275,570 without reinvestment

That $410,300 is what it costs to hold this exact income stream in a taxable account for two decades at the 24% bracket. AGNC and Starwood together account for $9,740 of the annual tax drag, which makes them the biggest drivers of the compounding gap. Any dividend cut would shrink the figure, and Starwood’s payout running ahead of distributable earnings is the clearest risk to watch. (We put the seven warning signs of an impending cut to a big yield into a free report here: Dividend Traps.)

Three Moves to Make Before Your Next Tax Filing

• Calculate your actual ordinary-income tax cost. If you hold Ares Capital, AGNC, or Starwood in a taxable account, compare the ordinary and qualified amounts on your 1099-DIV and multiply the ordinary part by your marginal rate before you file your 2026 return.
• Model a phased Roth conversion starting with ordinary-income payers. Weigh the one-time tax on each converted amount against the annual delta. Each conversion starts its own 5-year period, and withdrawing converted amounts early can trigger the 10% additional tax, so plan withdrawals around it.
• Rank your asset location by tax drag, not yield alone. In this portfolio, AGNC and Starwood generate the most taxable income per $125,000, and Altria’s qualified dividends rank last. When Roth contribution room is limited, fill it in that order, and rerun the math whenever a payout changes.

 

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.