Dividend Stocks That Generate $60,000 Tax-Free in a Roth IRA

A report by 24/7 Wall St. highlights a significant advantage of Roth IRAs: the ability to generate $60,000 in annual dividend income completely tax-free. In contrast, holding the same portfolio in a taxable account, assuming a 24% federal tax bracket, would result in a $14,400 tax bill each year on that income.

Details

The strategy involves building a portfolio of high-dividend-yield stocks, such as:

• AbbVie Inc. (ABBV): A biopharmaceutical company with a dividend yield of approximately 4.6%.
• AT&T Inc. (T): A telecommunications company with a dividend yield of approximately 5.5%.
• Verizon Communications Inc. (VZ): A telecommunications company with a dividend yield of approximately 6.5%.

With a total investment of about $1 million in these stocks, an investor can achieve $60,000 in annual dividend income. Inside a Roth IRA, this income is completely exempt from federal and state taxes, provided withdrawal rules are followed.

Context

A Roth IRA is a retirement account that allows tax-free growth, with taxes paid on contributions upfront. This makes it ideal for high-dividend stocks, as dividends in taxable accounts are taxed as ordinary income.

What This Means for Investors

For investors seeking steady retirement income, using a Roth IRA to invest in dividend stocks can save thousands of dollars annually in taxes. However, contribution limits and withdrawal rules must be considered.