Over the last few years, innovation in ETFs has been happening at a breakneck pace. When I see a new fund with a different strategy, I take a closer look and try to find a good investment use for it.
Launched on February 18, 2026, the Roundhill S&P 500® Target 10 Managed Distribution ETF (TPAY) offers an interesting potential way to produce a retirement income.
TPAY provides exposure to the S&P 500 and pays a monthly return of capital in the form of a 10% annual dividend.
The S&P 500 has returned roughly 10% per year over the long term, so a 10% payout rate can be seen as a reasonable assumption.
The big plus is that the distributions will be classified as return of capital (ROC). ROC distributions are not taxable income. They reduce the investment’s cost basis. So, if you put $1,000,000 into TPAY, you could theoretically earn $100,000 per year in non-taxable income.
Of course, stock market returns vary from year to year. If the S&P 500 gains more than 10% in a year, the position value will go up, and the monthly dividend amount will be larger the following year.
If the stock market doesn’t go up 10% or even goes down, the dividends will be smaller the following year.
Roundhill has announced the TPAY dividends for the rest of 2026.
I could see TPAY being useful in a situation where high after-tax income is desired from a capital sum. It should not be considered the core of a retirement plan.
The biggest danger would be a string of down years in the market, with TPAY share prices declining and 10% of the value paid out as distributions each year.
A plan to generate more consistent income at a 10% level would be to follow the recommendations in my Dividend Hunter newsletter service. The recommended portfolio has an average yield of about 10%.
The biggest plus for TPAY is the potential for “tax-free” income. But there are significant downsides.
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