With 2025 ending, savvy savers should start penciling in a few items on their personal finance to-do lists. One of the most important is planning for 2026 Roth IRA contributions. This account was designed for everyday Americans as a tax-sheltered investing option that complements a workplace 401(k) plan.
A Roth IRA offers several features that make it unique. You can withdraw your contributions at any time without taxes or penalties. Once you reach age 59½, you can also withdraw investment earnings tax-free, as long as the account has been open for at least five years. These rules give investors flexibility while rewarding long-term saving.
However, not everyone qualifies for a Roth IRA. To preserve its role as a tool for middle-income households, eligibility is based on modified adjusted gross income, or MAGI.
[Sign up for stock news with our Invested newsletter.]
For 2026, the income phaseout range for single filers and heads of household rises to between $153,000 and $168,000, up from $150,000 to $165,000 in 2025. Married couples filing jointly face higher thresholds, with a phaseout range of $242,000 to $252,000, compared with $236,000 to $246,000 the year before. These increases reflect inflation and cost-of-living adjustments.
That being said, eligibility for a Roth IRA is not an all-or-nothing test. Investors whose income falls within the phaseout range can make partial contributions, while those above the upper limit are barred entirely. Similar rules apply for married couples filing jointly.
Contribution limits also matter. For 2026, the maximum Roth IRA contribution rises to $7,500, up from $7,000 in 2025. Investors age 50 and older can add a $1,100 catch-up contribution, an increase from the $1,000 limit in 2025. These caps make Roth IRA space valuable and encourage thoughtful fund selection.
For example, capital losses in a Roth IRA cannot be used for tax-loss harvesting, which makes speculative investments less appealing. At the same time, a Roth IRA is usually self-directed, giving investors access to thousands of mutual funds and exchange-traded funds (ETFs) rather than a limited 401(k) lineup.
“Generally, investors should allocate funds that are less tax-efficient in a Roth IRA,” says Lauren Wybar, a wealth advisor executive at Vanguard. “Taxable bonds, real estate investment trusts (REITs) and actively managed stock funds tend to generate more ordinary income and capital gains, which are better sheltered in a Roth IRA.”
Here are seven of the best funds to hold in a Roth IRA:
| Fund | Expense ratio |
| Vanguard Wellington Fund Investor Shares (ticker: VWELX) | 0.25% |
| Vanguard Wellesley Income Fund Investor Shares (VWINX) | 0.23% |
| Vanguard Windsor Fund Investor Shares (VWNDX) | 0.36% |
| Amplify CWP Enhanced Dividend Income ETF (DIVO) | 0.56% |
| Dimensional World Equity ETF (DFAW) | 0.25% |
| Xtrackers USD High Yield Corporate Bond ETF (HYLB) | 0.05% |
| Fidelity Wise Origin Bitcoin Fund (FBTC) | 0.25% |
Vanguard Wellington Fund Investor Shares (VWELX)
Actively managed mutual funds can be a good fit inside a Roth IRA because they tend to be less tax-efficient in a taxable account. Active managers trade more frequently than passive index funds, which leads to higher portfolio turnover. Even if you do not sell any shares, those trades can generate capital gains that are distributed to shareholders, usually in December, and taxed in a brokerage account.
Inside a Roth IRA, those capital gains distributions are irrelevant, which makes active funds more appealing. VWELX is a classic example. Its roughly 65% stock and 35% bond allocation has delivered an 8.4% annualized return over its lifetime dating back to 1929, a period that included the Great Depression, the dot-com bubble and the global financial crisis. VWELX charges a 0.25% expense ratio.
Vanguard Wellesley Income Fund Investor Shares (VWINX)
“Roth IRAs are an attractive savings vehicle because investors can contribute to them regardless of age and take advantage of tax-free income in retirement, with no required minimum distribution (RMD), unlike a traditional IRA, which requires distributions at age 73,” says Tiana Patillo, a financial advisor manager at Vanguard. For income investors, Vanguard offers VWINX, which has been around since 1970.
This balanced fund follows a similar active stock-and-bond approach as VWELX but with a more conservative tilt. VWINX maintains about a 35% allocation to stocks and 65% to bonds, prioritizing capital preservation and steady income. When held inside a Roth IRA, investors can keep the fund’s above-average 3.6% 30-day SEC yield without tax erosion. VWINX charges a 0.23% expense ratio.
Vanguard Windsor Fund Investor Shares (VWNDX)
“Roth IRAs are especially beneficial for younger investors because there is greater saving potential due to that tax-free compounding,” Patillo says. If long-term growth is the priority rather than current income, an all-equity option such as VWNDX can make sense inside a Roth IRA. Like VWELX and VWINX, VWNDX is an active fund and a long-standing part of Vanguard’s lineup, dating back to 1958.
VWNDX’s active value investing approach uses a multi-manager structure, where several portfolio managers each run a portion of the fund. This setup supports bottom-up fundamental research, meaning managers focus on individual company fundamentals rather than making broad market or sector calls. Since inception, the fund has delivered an 11.3% annualized total return.
Amplify CWP Enhanced Dividend Income ETF (DIVO)
“Given a Roth IRA has no RMD rule, this is usually the last type of retirement account to take distributions (from) compared to traditional IRAs and taxable brokerage accounts,” says Brandon M. Clark, director of financial planning at the Clark Group Asset Management. “In addition, this account is usually the most advantageous for beneficiaries because they inherit the funds tax-free as well.”
Many retirees who want income prefer not to sell shares to fund withdrawals. For those investors, an income-focused ETF such as DIVO can be a practical option. The ETF starts with a concentrated portfolio of 20 to 25 dividend growth stocks. The manager then sells covered calls on a portion of the holdings. This approach limits some upside, but it supports a 5.6% distribution yield with monthly payments.
[READ: 7 High-Yield Covered Call ETFs Income Investors Will Love]
Dimensional World Equity ETF (DFAW)
“We typically recommend owning mostly growth-oriented investments, like stocks, to maximize the return potential over time,” Clark explains. “Of course, everyone’s risk tolerance and goals are different, but broad-based ETFs can be a good option for maximizing a Roth IRA’s growth long term.” An advisor-favored option for that role is DFAW, which goes beyond traditional passive indexing.
Dimensional Fund Advisors is known for its factor-based investing approach. DFAW applies that philosophy across a globally diversified portfolio of U.S., international developed and emerging market stocks. The fund tilts toward smaller companies, lower-priced stocks and more profitable firms. But despite its active implementation, DFAW charges a relatively modest 0.25% expense ratio.
Xtrackers USD High Yield Corporate Bond ETF (HYLB)
High income is not limited to dividend stocks or covered call strategies. Investors can also look to fixed income, particularly high-yield or “junk” bonds. They carry a greater risk of default, but investors are compensated with higher coupon payments. In a taxable account, high-yield corporate bond income is less tax-efficient than Treasurys or municipal bonds because it is subject to federal and state taxes.
Inside a Roth IRA, that drawback becomes irrelevant. All income and gains can compound tax-free, allowing investors to capture the full return potential of high-yield bonds. A low-cost option in this space is HYLB, which charges a very competitive 0.05% expense ratio. Keeping fees low helps preserve income, and HYLB currently pays a monthly distribution that equates to a 6.8% 30-day SEC yield.
Fidelity Wise Origin Bitcoin Fund (FBTC)
“Acting as a tax-free piggy bank, Americans can use Roth IRAs to invest in high-growth assets while maximizing their tax savings in the future,” says Chris Kline, chief operating officer and co-founder of Bitcoin IRA. “It’s one of the reasons Bitcoin, whether via ETFs or direct custody in self-directed IRAs, is becoming a popular choice to diversify within retirement accounts.” For this role, consider FBTC.
FBTC is not the cheapest or the largest spot Bitcoin ETF, but it stands out for its custody structure. Unlike many competitors, the fund does not rely on Coinbase Global Inc. (COIN) as the custodian for its Bitcoin reserves. Instead, Fidelity Digital Assets provides custody, reducing reliance on a single external provider. FBTC charges a 0.25% expense ratio and is well capitalized, with about $18.2 billion in assets.
More from U.S. News
How to Pick Investments for Your 401(k)
How to Start Investing and Saving for Retirement With Little Money
7 Best Funds to Hold in a Roth IRA originally appeared on usnews.com
Update 12/15/25: This story was published at an earlier date and has been updated with new information
