How a 69-Year-Old’s $500,000 in QQQI Pays Him Every Month While His Cost Basis Falls Toward Zero

How a 69-Year-Old’s $500,000 in QQQI Pays Him Every Month While His Cost Basis Falls Toward Zero

Ryne Mauck

Sat, September 5, 2026 at 12:05 AM GMT+3 5 min read

Quick Read

• QQQI pays roughly $8 per share annually, but nearly all of its distributions are classified as return of capital, steadily eroding investors' cost basis.

• Once a shareholder's adjusted cost basis reaches zero, additional QQQI distributions flip from tax-deferred to immediately taxable capital gains.

• QQQI's active options overlay costs more than plain QQQ or QQQM, and selling calls can surrender upside during strong market rallies.

• Read More: Learn 7 secret wealth tips high net worth investors use that most investors miss (sponsor)

You are 69 years old and hold $500,000 of the NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI). Every month, a distribution lands in your brokerage account. Over the trailing twelve months, QQQI has paid $7.648285 per share, including $0.6518 in August 2026. At a recent price of $54.65, the headline yield looks generous. The problem is what most of that check actually is under the tax code.

What Return of Capital Actually Means

What many investors fail to realize is that a large portion of QQQI's distribution is actually return of capital (ROC). ROC is a separate tax classification. When a fund pays out cash beyond its net investment income and realized gains, the IRS treats the excess as a return of your own invested principal, arriving in the wrapper of a monthly distribution. That portion is deferred rather than taxed as ordinary income today. In exchange, the IRS requires you to reduce your cost basis by the same amount. You get a tax deferral now, while you build a larger taxable gain for later.

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How ROC Looks in Action

According to NEOS Investments' IRS Form 8937 filings, the vast majority of QQQI's distributions have been classified as return of capital (ROC). Roughly 94.45% of each distribution from June through December 2024 was classified as ROC, rising to about 98.86% from January through May 2025. That share climbed even further for the remainder of 2025, with approximately 99.60% of each distribution from June through December classified as ROC. NEOS notes that the ROC portion generally reduces a shareholder's cost basis rather than being immediately taxable as income. These classifications apply only to the distributions covered by the recent filing; QQQI's tax treatment can change from year to year.

When Cost Basis Falls Toward Zero

Every month the retiree receives a distribution, and historically most of that distribution has been classified as ROC for tax purposes. Each dollar of ROC reduces the shareholder's adjusted basis, potentially increasing the taxable gain when the shares are eventually sold.

That process cannot continue indefinitely. Once adjusted basis reaches zero, additional nondividend distributions are generally treated as capital gains in the year received. Whether that gain receives long- or short-term treatment depends on how long the shares have been held.

That makes cost basis an important number for long-term QQQI investors to track. The monthly cash does not disappear, but neither does the tax consequence.

Cheaper Mirrors and the Fee Question

Fees are another cost to consider. QQQI charges materially more than plain Nasdaq-100 index ETFs, largely because investors are paying for an actively managed options strategy on top of the equity portfolio.

The Invesco QQQ Trust (NASDAQ:QQQ) and Invesco NASDAQ 100 ETF (NASDAQ:QQQM) provide exposure to many of the same underlying companies, and QQQI's $13.1 billion portfolio is similarly concentrated in familiar Nasdaq names. NVIDIA accounts for 7.65% of assets, followed by Apple at 6.63%, Micron at 5.61%, and Microsoft at 4.38%. The difference is that QQQI layers a call-options strategy over that equity exposure to generate monthly income. That income comes with a trade-off: selling calls can surrender some upside during strong market rallies. Investors who want a similar Nasdaq-focused income strategy at a lower expense ratio can also compare QQQI with the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ).

What the Retiree Should Actually Track

The real question for our 69-year-old is what happens to his cost basis as those monthly checks keep arriving. Investors should track their adjusted basis each year and review Box 3 of Form 1099-DIV, where nondividend distributions are reported. As long as basis remains above zero, ROC generally reduces that basis rather than creating an immediate tax bill; once basis reaches zero, additional ROC is generally treated as a capital gain.

For retirees, that makes QQQI's tax deferral valuable, but not free of consequences. A tax professional can help determine what a low- or zero-basis position could mean based on your tax bracket, state, and estate plan. Retirees who want monthly income without relying as heavily on ROC have another route worth studying: a dividend ladder designed to generate regular checks without selling shares, which we laid out in our free guide here: Never Touch the Principal. QQQI's monthly check is real, but investors should understand what is happening to their cost basis behind it.

Learn 7 Secret Wealth Tips High Net Worth Investors Use

How do you continue to grow a seven-figure portfolio in retirement? The last thing you want is to run out of money, you want your money to generate lasting income while you enjoy your life.

Learn seven strategies high net worth investors use with new report: The Seven Secrets of High Net Worth Investors from Fisher Investments. Get your guide here (sponsor)

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