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The Best ETFs for Roth IRA Accounts

Types of Exchange-Traded Funds That Work Best for Roth IRA Accounts

The best Exchange-Traded Funds (ETFs) for Roth IRA accounts include funds that are designed for long-term investing. ETFs and other investments held in Individual Retirement Accounts (IRAs) grow tax-free, and certain types of funds are ideal for this qualified retirement plan, such as growth and income funds.

Best Types of Exchange-Traded Funds for Roth IRA Accounts

The best Exchange-Traded Funds for a Roth IRA account include growth funds and income funds. Growth funds can be ideal if you are investing for retirement and have years or decades before you need the money. You can choose an ETF that primarily invests in growth stocks for your Roth IRA.

If you want to purchase funds that generate income, such as dividend funds or bond funds, a Roth IRA is the perfect account to embrace these funds. Dividends from stocks and interest from bonds would be taxed as ordinary income in a regular brokerage account. You do not need to pay this tax if you hold these investments in a Roth IRA.

Examples of the Best Exchange-Traded Funds for Roth IRA Accounts

Your retirement accounts should have a diversified array of Exchange-Traded Funds. There is no one specific type of ETF that should only be held in a Roth IRA. Try to maintain a variety of ETFs from different types. This is especially important if the IRA is your only means of long-term saving. A diverse array of investments will protect your long-term savings.

Here are some specific examples of ETFs that can perform well in a Roth IRA or another retirement account:

– S&P 500 Index Funds: S&P 500 index tracking funds are considered good core assets in Roth IRA accounts. An example is the iShares Core S&P 500 ETF (IVV) with an expense ratio of 0.03%, and the SPDR S&P 500 ETF Trust (SPY) with an expense ratio of 0.0945%.

– Growth Stock Funds: You may want to choose an ETF that invests in growth stocks if you are an investor willing to tolerate some risk in exchange for higher return opportunities. An example is the Invesco QQQ (QQQ), which invests in most technology stocks in the NASDAQ index, with an expense ratio of 0.20%. And the Vanguard Growth ETF (VUG) that tracks the CRSP U.S. Large Cap Growth index, with an expense ratio of 0.04%.

– Dividend Funds: Dividends are taxed as ordinary income in a standard brokerage account. Holding them in a Roth IRA can help you save on the taxes you would pay on those dividends. An example is the Vanguard High Dividend Yield ETF (VYM) that tracks the FTSE High Dividend Yield index, with an expense ratio of 0.06%. And the iShares Core High Dividend Growth (DGRO) that tracks the Morningstar Dividend Growth index, with an expense ratio of 0.08%.

– Bond Funds: Interest from bonds and bond funds is taxed as ordinary income. Investments held in Roth IRA accounts are not taxed at withdrawal, so bond ETFs can be good investments. An example is the iShares Core U.S. Aggregate Bond (AGG), which represents the broad U.S. bond index, with an expense ratio of 0.04%. And the iShares iBoxx $ High Yield Corporate Bond (HYG) with an expense ratio of 0.48%.

Questions

Frequently Asked Questions (FAQs)

1. How can I open a Roth IRA account?

2. When can I withdraw money from my Roth IRA account?

3. How much can I contribute to a Roth IRA account?

4. What is the age a person must be to open a Roth IRA account?

5. When can I contribute to a Roth IRA for the current tax year?

References:

– IRS. “401(k) Plans.”

– IRS. “Individual Retirement Arrangements (IRAs).”

– IRS. “Traditional and Roth IRAs.”

– IRS. “Safe Harbor Explanations – Eligible Rollover Distributions,” Pages 16-17.

– IRS. “Topic No. 403 Interest Received.”

– IRS. “Publication 550 (2021), Investment Income and Expenses.”

– iShares. “iShares Core S&P 500 ETF.”

– State Street Global Advisors. “SPDR S&P 500 ETF Trust.”

– Invesco. “Invesco QQQ Trust.”

– Vanguard. “Vanguard Growth ETF (VUG).”

– Investor.gov. “Form 1099, Investment Income (Interest and Dividends).”

– Vanguard. “Vanguard High Dividend Yield ETF (VYM).”

– iShares. “iShares Core Dividend Growth ETF.”

– iShares. “iShares Core U.S. Aggregate Bond ETF.”

– iShares. “iShares iBoxx $ High Yield Corporate Bond ETF.”

– IRS. “Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs).”

– IRS. “Retirement Topics – IRA Contribution Limits.”

– Fidelity. “Turbocharge Your Child’s Retirement with a Roth IRA for Kids.”

Source: https://www.thebalancemoney.com/best-etfs-for-roth-iras-4175606

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