With 2020 being a presidential election year, the specter of alterations to the tax code looms and that could impact dividend investors. That could mean advisors and investors may want to examine the newly minted Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI).
PQDI, which debuted earlier this month, “seeks to provide current income. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying securities at the time of purchase,” according to Principal. “Such securities 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.”
Qualified dividends are subject to different tax treatment than traditional payouts and that’s worth noting at a time when there’s talk of rising taxes on standard dividends.
“In 2019 and 2020, the capital gains tax rates were either 0%, 15% or 20% for most assets that were held for more than a year. The capital gains tax rates on most assets that were held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%),” according to Dividend Investor.
Tax Benefits Matter
If the Democrats sweep this election seasons – taking the White House and both houses of Congress – dividends will almost assuredly be taxed as ordinary income, underscoring the advantages of PQDI.
“Assuming the Democrats retain the House and possibly retake the Senate, there is almost a 100% consensus from Biden on down that capital gains will be taxed as ordinary income. Count on it. He already has made this part of his campaign platform,” according to Dividend Investor.
Democrat nominee Joe Biden also said he would raise the capital gains tax to 39.5%. Additionally, the government is deep into deficit spending, which elevates the probability of tax increases if Biden wins in November.
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. As mentioned, PQDI targets qualified dividends, thereby helping U.S. taxpayers boost after-tax income.
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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.