This isn’t a sanguine dividend environment many investors were expecting at the start of the year, but the newly minted Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI) can take some the edge off that volatility will provide high levels of tax-advantaged income.
PQDI is the first of its kind—offering investors access to qualified dividend income via all three sectors of the global U.S. dollar capital securities market. The Principal ETF targets qualified dividends, thereby helping U.S. taxpayers boost after-tax income.
“What’s more, qualified dividends offer tax breaks to investors holding them in taxable accounts; the same is true for qualified dividends passed through from mutual funds. Such dividends may receive the same favorable tax rate as long-term capital gains,” according to the CPA Journal.
Unique Income Structure
PQDI components include, without limitation, preferred securities and capital securities of U.S. and non-U.S. issuers. The fund invests significantly in securities that, at the time of issuance, are eligible to pay dividends that qualify for favorable U.S. federal income tax treatment, such as dividends treated as qualified dividend income (QDI) or qualified dividends from real estate investment trusts (REITS).
Like common stock, preferred stock is issued by a company and traded on an exchange. Preferred stock prices can fluctuate, but most of the returns from preferred stock come from dividends. Unlike common stock, preferred stock dividends are predetermined and paid at regular intervals. These dividends are paid in full before any dividends are released to common stockholders.
“If dividends from investments are qualified, they receive the same tax rate as long-term capital gains. These bargain tax rates depend on the investor’s taxable income for the year the dividends are received,” reports CPA Journal.
That’s important because long-term capital gains tax rates are favorable. PQDI is a potentially potent tax saver for married couples, too.
“Because taxable income is after all deductions, a married couple, for example, might have gross income well over $80,000 and still owe 0% tax on dividends from investments,” notes CPA Journal. “In contrast, high-income taxpayers may owe as much as 23.8% in tax on qualified dividends if they are subject to the 3.8% surtax on net investment income. In any case, these tax rates are significantly lower than the ordinary income rates that apply to interest income from bonds and income from nonqualified dividends.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.