The Healthy-Fund Screen, All the Way to What It Actually Pays You After Tax

Sort high-yield funds by how much of the payout is real income rather than your own money coming back, and something awkward happens. Nearly every fund lands on the same answer: roughly zero.

That is not a verdict on the funds. It is a verdict on the screen. The measure is worth computing, but it cannot be the thing you rank on — and the half that decides what reaches your bank account, tax character, is the half the screen does not compute.

What the 19a-1 notice actually tells you

Federal securities law requires a fund to send shareholders a Section 19(a) notice — a “19a-1” — when a distribution is paid from a source other than the fund’s net income (a term that excludes profits from selling securities). The notice splits the payment into net income, net profits from the sale of securities, and paid-in surplus or other capital source — the last of which reaches investors under the everyday name return of capital (ROC): your own capital handed back rather than money the fund earned.

The SEC states the rule’s purpose as affording shareholders adequate disclosure of the sources from which distributions are paid, so they do not confuse income dividends with distributions made from capital.

Two things matter more than the number on the notice. First, it is an estimate — the rule permits the split to be reasonably estimated, and YieldMax’s whitepaper says the announced ROC figure “is an estimate,” that such estimates “should not be relied on for tax reporting purposes,” and that the authoritative figure arrives on the Form 1099 after the year closes.

Second, the same whitepaper argues that “ROC is a tax classification, not a reflection of economic loss or investment performance.” That is the issuer’s framing, worth taking seriously — and also the claim a screen built on ROC has to test rather than assume.

Why the official yield is no help here

The standardized 30-Day SEC Yield fails here structurally. As YieldMax puts it, that figure “represents net investment income, which excludes option income,” while the distribution rate annualizes “the most recently declared distribution, which includes option income.” For a fund whose whole strategy is selling options, the standardized number omits the payout.

The SEC yield excludes option income — which is the entire payout

Fund	Distribution rate	30-day SEC yield
XYLD	11.57%	0.51%
SPYI	12.04%	0.47%

Global X reports XYLD as of Aug 12, 2026; NEOS reports SPYI as of Jul 31, 2026.

Neither number is wrong. They answer different questions, and only one is the question a holder is asking.

The screen, computed

“True income yield” is the distribution rate multiplied by the share that is not return of capital. Both inputs below are our own snapshot measurements, dated August 10–12, 2026.

Fund	Distribution rate (our data)	ROC share (TTM)	“True income yield”	NAV since inception	Total return since inception (distributions taken in cash)
ACKY	14.18%	100.00%	0.00%	−8.97%	+3.93%
QQQI	13.83%	99.31%	0.10%	+10.63%	+47.98%
BIGY	11.94%	98.62%	0.16%	+4.99%	+25.33%
XYLD	10.42%	97.24%	0.29%	−15.66%	+54.75%
SPYI	11.66%	96.85%	0.37%	+10.10%	+58.18%
DIVO	6.20%	76.02%	1.49%	+31.70%	+74.47%

Two rates here differ from the issuer figures above — XYLD at 10.42% against Global X’s 11.57%, SPYI at 11.66% against NEOS’s 12.04%. We have not reconciled the two methodologies; use one source or the other consistently, and never mix them inside a ranking.

Five of those six sit inside a 3.15-percentage-point band of ROC share, from 96.85% to 100%. On the screen, the gaps between them are a fraction of a percentage point. Their total returns span +3.93% to +58.18% — a 54-point spread behind a 3.15-point one.

ACKY is the profile the screen is aimed at: the highest ROC share and the lowest total return in the set. XYLD cuts the other way — a 97.24% ROC share and a NAV down 15.66%, yet a total return of +54.75%, a falling NAV the distributions more than paid for.

So ROC is a flag, not a verdict. It tells you to check the NAV line and the total return, and those two are what separate a fund whose distributions are covered from one whose NAV is being consumed.

Two limits are worth naming. JEPQ (NAV +16.93%, total return +64.79%) and JEPI (NAV −5.36%, total return +43.80%) report no ROC share in our data at all, so a screen requiring one cannot rank them.

The second limit is sharper. Distribution coverage — what share of the payout was actually earned — is defined in our pipeline as an “Est. Income Coverage of Distribution” field, and it is empty for every fund we track, because it is computed from the SEC yield. The standard coverage metric rests on the one number this article has just shown cannot describe an option-income fund.

The half the screen does not compute

The character of a distribution — how it lands on your Form 1099-DIV — moves the cash you keep. Box 1a is total ordinary dividends, taxed at your ordinary rate; Box 1b the portion qualifying for reduced capital-gains rates; Box 3 nondividend distributions, return of capital, untaxed on receipt.

A fourth path reaches only some option-income funds. Broad-based index options such as SPX and NDX are Section 1256 contracts, taxed 60% at long-term and 40% at short-term rates regardless of holding period; options on individual stocks and on ETFs are not. NEOS states it for SPYI: “Index options are classified as Section 1256 contracts, which are subject to lower 60/40 tax rates.”

Our tax-treatment field reads “Section 1256 (60/40)” for SPYI and QQQI, and “Ordinary Income” for ACKY, BIGY, XYLD and DIVO. One of those looks like ours to fix: XYLD and SPYI both write S&P 500 index options — our own records show SPX for each — so by the rule just stated, XYLD’s ordinary label appears wrong. We flag it rather than quietly correct it mid-article. ACKY’s ordinary label is what the rule predicts: it writes options on individual stocks.

Now vary only the character. Take a $100,000 position paying BIGY’s 11.94% — $11,940 a year — held by a 2026 single filer in the 24% ordinary bracket (which begins at $105,700 of taxable income), at a 15% rate on qualified dividends and long-term gain, in a taxable account, no surtax, no state tax.

Character reported	Tax in year 1	Cash kept	Effective net rate
All ordinary income	$2,865.60	$9,074.40	9.07%
All Section 1256	$2,220.84	$9,719.16	9.72%
All qualified dividend	$1,791.00	$10,149.00	10.15%
All return of capital	$0	$11,940.00	11.94% (deferred)

That is $644.76 a year per $100,000 between the first two rows on identical gross income — and $1,074.60 between the ordinary and qualified rows. Either gap is larger than the 0.53-point expense spread across the six funds in the screen table. The screen contains no tax term, so it cannot register any of it.

Except almost none of that is paid today

Apply those rates to the actual funds and the difference evaporates. At QQQI’s 99.31% ROC share, only about $95 of its $13,830 distribution is currently taxable — roughly $18 of tax. At ACKY’s 100.00%, it is zero. The distinction is real, but this year it reaches under four percent of the cash for five of the six funds above. DIVO, at a 76.02% ROC share, is the exception.

For these funds the character question is not about rates. It is about timing — and that is where the ranking inverts.

The ranking inverts on deferral

XYLD pays 10.42% with a 97.24% ROC share. JEPQ pays 10.92% and reports no ROC share; assume for this comparison that its distribution is fully currently taxable — an assumption we flag, because our own snapshot cannot confirm it. Same position, same bracket.

JEPQ leads before tax; XYLD leads after it

Fund	Income before tax	Income after tax
JEPQ	$10,920	$8,299
XYLD	$10,420	$10,351

Per $100,000 — XYLD’s edge is deferral; JEPQ modelled as fully currently taxable.

JEPQ leads by $500 before tax and trails by $2,052 after it — four times the pre-tax gap, and none of it from a difference in what the two funds returned. Note that this taxes XYLD’s slice at the ordinary rate, consistent with its current label; if the Section 1256 label is the correct one, XYLD’s lead widens rather than narrows.

The deferral has an end date

Read that inversion carefully: it is a loan, not a gift. Return of capital is not taxed on receipt; it reduces your cost basis instead.

It also loses the character advantage on the way back. Recaptured return of capital returns as capital gain for every fund alike — a fund’s Section 1256 status does not govern it. What survives the deferral is the timing, not the rate.

NEOS says the same in its own disclosure: “Distributions classified as return of capital will reduce an investor’s cost basis in Fund shares owned, which may result in higher taxes paid in the future when the Fund shares are sold, even if the shares are sold at a loss compared to the original investment.”

And the basis runs out. The IRS is explicit: “Once the adjusted cost basis of your stock has been reduced to zero, any further nondividend distribution is a taxable capital gain.” At $11,940 a year against a $100,000 basis — constant dollar distribution, no reinvestment, no other adjustment — that takes 8.4 years.

Three frictions the screen does not price

The number you screened on is provisional. The ROC split is an estimate that finalizes on the 1099, so the screen must be re-run each period rather than treated as a permanent grade.

Written calls can cost the qualified rate — but check whose calls. Qualified treatment needs the shares held more than 60 days in the 121-day period beginning 60 days before the ex-dividend date, and days when risk of loss was diminished, including days spent as the grantor of a call, do not count. Two caveats: the rule bites the party holding the stock and writing the call, which here is the fund, affecting what it passes through; and the code carves out qualified covered calls, which many listed, longer-dated written calls that are not deep-in-the-money satisfy.

The 3.8% surtax sits on top, above modified AGI of $200,000 single or $250,000 married filing jointly, reaching dividends and net gains whatever character the fund reports.

The verdict

Your situation	What to rank on	Why	What to watch
Retiree drawing cash, taxable account	Total return, then tax character	Deferral is worth real money now — $2,052 a year per $100,000 in the example above, deferred rather than saved	Your remaining basis; at zero, further ROC becomes capital gain
Accumulating, taxable account	Total return, then character, then fee	A payout you are taxed on and did not need is a drag	Whether the fund’s options qualify for 60/40 at all
Accumulating, IRA or 401(k)	Total return and fee only	Nothing in these rates operates inside a sheltered account, so on this arithmetic the tax half has nothing to act on — though our sources do not address the tax-deferred case directly	Paying a higher fee for a tax feature you cannot use
Screening what you already hold	Re-run it, don’t remember it	The ROC input is an estimate that finalizes on the 1099	A NAV falling faster than distributions arrive — that combination, not ROC alone, is the alarm

The screen is worth running. It answers a narrower question than the one asked of it: it tells you what the fund is calling the money, not whether the fund is making the money, and not what you get to keep.

Want this run across your own holdings? Our fund pages carry the distribution, NAV and total-return figures used above, the tax-treatment classification, and — for funds that report one, which as JEPI and JEPQ show is not all of them — the ROC share. Pair this with our explainers on return of capital and the 19a-1 notice, distribution coverage and how covered-call distributions are taxed.