Capturing High Yield with Low Risk: Evaluating abrdn Income Credit Strategies Fund's A2-Rated Preferred Stock ACP.PRA for IRA Portfolios

In a high-interest-rate environment, income-focused investors face a dual challenge: securing robust yields while mitigating risk. The abrdn Income Credit Strategies Fund's A2-rated preferred stock (ACP.PRA) has emerged as a compelling candidate for IRA portfolios, offering a 6.60% dividend yield as of late 2025, supported by a diversified portfolio of loan and debt instruments. This analysis evaluates ACP.PRA's suitability for IRA investors, balancing its yield potential against structural risks and tax implications in a high-tax landscape.

Yield and Credit Quality: A High-Interest-Environment Play

ACP.PRA's 6.60% yield, derived from a $0.33 quarterly distribution, positions it as one of the more attractive options in a market where traditional fixed-income assets struggle to keep pace with inflation. The fund's underlying portfolio, weighted toward corporate bonds (90.90%) with an average coupon of 7.12%, further reinforces its income-generating capacity. Moody's A2 rating, a notch above junk status, suggests a relatively low default risk compared to many high-yield alternatives. However, investors must scrutinize the fund's leverage structure: 29.17% effective leverage as of September 2023 amplifies both returns and downside risks in volatile markets.

For IRA holders, the tax-deferred or tax-free nature of these accounts mitigates concerns about current taxation of dividends. Traditional IRAs defer taxes until withdrawal, while Roth IRAs offer tax-free growth-a critical advantage in a high-tax environment. Notably, ACP.PRA's distributions, which may include capital gains or return of capital, are detailed in Form 1099-DIV, enabling investors to plan for future tax liabilities.

Risk Mitigation and Expense Considerations

While ACP.PRA's yield is enticing, its total expense ratio of 3.70%-comprising management fees (2.14%), interest expenses (1.22%), and other costs-exceeds many high-yield bond ETFs. This raises questions about net returns, particularly for taxable accounts. However, within IRAs, these expenses are less impactful, as they do not directly affect the investor's tax bill. The fund's focus on diversified corporate debt also reduces sector-specific risks, though its 29.17% leverage introduces sensitivity to interest rate hikes.

Comparative analysis reveals mixed signals. The U.S. high-yield market, for instance, saw $226.15 billion in issuance through Q3 2025, driven by refinancing activity and narrowing credit spreads. Yet, ACP.PRA's yield is partially propped up by return of capital, a non-sustainable component that may erode principal over time. For IRA investors prioritizing long-term stability, this dynamic warrants caution.

Tax Environment and State-Level Implications

The 2025 State Tax Competitiveness Index underscores how high-tax states like New York and California disincentivize investment, with complex tax codes reducing net returns on high-yield assets. For residents in these jurisdictions, holding ACP.PRA in IRAs offers a strategic advantage: shielding dividends from state-level taxation. The One Big Beautiful Bill Act of July 2025, while primarily targeting energy and manufacturing credits, does not alter IRA tax rules, preserving the status quo for retirement account holders.

However, investors should note that the Net Investment Income Tax (NIIT) of 3.8% may apply to non-IRA accounts with high modified adjusted gross incomes, though IRAs are exempt. This further strengthens the case for IRA allocation, particularly for high-net-worth individuals.

Conclusion: A Balanced Approach for IRA Portfolios

ACP.PRA's 6.60% yield and A2 credit rating make it a viable option for income-seeking IRA investors in a high-rate environment. Its diversified corporate debt portfolio and tax-deferred growth potential align with the objectives of conservative income strategies. Yet, the fund's leverage and expense ratio necessitate a careful cost-benefit analysis. For those prioritizing tax efficiency and moderate risk, ACP.PRA complements a broader IRA portfolio, though alternatives like low-cost high-yield ETFs may offer superior net returns in taxable accounts. Ultimately, the decision hinges on an investor's risk tolerance, tax situation, and willingness to accept structural trade-offs for yield.