Found the dream fund you plan on holding for the long term? Before buying it across all your accounts, make sure you understand how it’s taxed.
Take the Vanguard Wellington Fund Investor Shares (ticker: VWELX) as an example. This active fund has been around since 1929 and has earned a reputation for consistent returns, with a mix of about two-thirds high-quality, value-screened dividend stocks and one-third investment-grade bonds.
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Over the past 10 years, VWELX posted a competitive 10% annualized return on paper. But factor in taxes on its distributions and capital gains from selling shares, and Vanguard estimates the net return drops closer to 7.6% annualized. Over time, that kind of drag can compound into a much smaller portfolio value.
That’s why a tax-sheltered account like a Roth IRA is one of the best places to hold funds like VWELX. With a Roth IRA, you can withdraw contributions at any time without penalty. And once you reach age 59 1/2 and have held the account for at least five years, you can withdraw both contributions and investment earnings tax-free.
“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 income and capital gains, which are better sheltered in a Roth IRA.”
To qualify for a Roth IRA, your modified adjusted gross income must fall below a certain level. For 2025, that threshold is $150,000 for single filers and $236,000 for married couples filing jointly. If your income exceeds those limits, your ability to contribute may be reduced or eliminated altogether.
If you are eligible, Roth IRAs allow up to $7,000 in annual contributions for 2025. If you are age 50 or older, you get an extra $1,000 catch-up provision.
Here are seven of the best mutual funds and exchange-traded funds, or ETFs, to hold in a Roth IRA:
| Fund | Expense ratio |
| Vanguard Wellesley Income Fund Investor Shares (VWINX) | 0.23% |
| JPMorgan Equity Premium Income ETF (JEPI) | 0.35% |
| Simplify Volatility Premium ETF (SVOL) | 0.72% |
| Vanguard Primecap Fund Investor Shares (VPMCX) | 0.37% |
| SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM) | 0.03% |
| iShares Bitcoin Trust ETF (IBIT) | 0.25% |
| Cohen & Steers Quality Income Realty Fund (RQI) | 2.46%* |
*Managed assets expense ratio, or the ratio of expenses to average daily managed assets.
Vanguard Wellesley Income Fund Investor Shares (VWINX)
“Roth IRAs are an attractive financial 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. If you are using a Roth IRA for income, consider VWINX.
In a Roth IRA, investors can keep all of VWINX’s above-average 3.6% 30-day SEC yield without owing tax on it. This conservative fund allocates one-third of its portfolio to dividend-paying value stocks and two-thirds to investment-grade bonds, emphasizing capital preservation and steady income. It is also very affordable for an actively managed fund, charging a modest 0.23% expense ratio.
JPMorgan Equity Premium Income ETF (JEPI)
“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.”
JEPI is another popular ETF for defensive income. It is actively managed, with a portfolio of low-volatility U.S. large- and mid-cap stocks, and it monetizes S&P 500 index volatility through equity-linked notes, or ELNs, that synthetically replicate a covered-call strategy. JEPI currently delivers a 7.2% 30-day SEC yield and remains affordable for active management, with a 0.35% expense ratio.
Simplify Volatility Premium ETF (SVOL)
“SVOL primarily seeks to capture volatility risk premiums through a short VIX futures strategy while incorporating hedges to mitigate extreme market swings,” says Jeff Schwarte, chief equity strategist at Simplify. This ETF combines a variety of other Simplify equity- and fixed-income ETFs and an overlay designed to produce returns one-fifth to three-tenths of inverse short-term VIX futures.
The result is a 20% distribution yield and price returns less correlated to equity and fixed-income markets. “Since Roth IRAs can offer tax-free growth and withdrawals, SVOL’s high-yield monthly distributions and potential for capital appreciation can be fully realized without incurring additional tax burdens, making it an attractive choice for long-term, tax-advantaged investing,” Schwarte says.
Vanguard Primecap Fund Investor Shares (VPMCX)
“Roth IRAs are especially beneficial for younger investors because there is greater saving potential due to that tax-free compounding,” Patillo says. For potential outperformance over a broad index, consider an actively managed fund like VPMCX. Since its launch in 1984, it has delivered a 13.7% annualized return, beating the S&P 500’s 11.9% return over the same period despite a 0.37% expense ratio.
VPMCX is a growth fund with flexibility to invest across sectors and market caps. It is structured as a set of sub-portfolios, each run independently by a different portfolio manager. They focus on holding stocks for three to five years, keeping turnover low and building conviction through concentrated positions. Because VPMCX tends to issue large year-end capital gains distributions, it is best suited for a Roth IRA.
[Read: 7 High-Return, Low-Risk Investments for Retirees]
SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
“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.” For this goal, consider using a low-cost index ETF like SPTM, which charges a 0.03% expense ratio.
SPTM is a composite broad-market index ETF that combines the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indexes into one fund. This gives investors passive exposure to approximately 90% of the investable U.S. stock market in a single ticker. It’s highly liquid, with a 0.01% 30-day median bid-ask spread, and also well capitalized, with more than $11 billion in assets under management, or AUM.
iShares Bitcoin Trust ETF (IBIT)
“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 Bitcoin exposure, consider IBIT.
Launched in January 2024, IBIT is already one of the most successful ETF launches of all time, with more than $89 billion in AUM. It tracks the CME CF Bitcoin Reference Rate — New York Variant and is a spot Bitcoin ETF, meaning it holds actual Bitcoin in custody rather than using futures contracts. IBIT charges a 0.25% expense ratio.
Cohen & Steers Quality Income Realty Fund (RQI)
REIT distributions tend to be less tax-efficient, making them better suited for a Roth IRA, where income can grow and be withdrawn tax-free. For enhanced exposure to real estate, consider RQI, a closed-end fund, or CEF. Unlike ETFs, the market price of a CEF like RQI can trade at a discount or premium to its net asset value, depending on supply and demand, as it does not continually create new shares.
RQI holds a portfolio of more than 190 REITs diversified across different subsectors, including office, warehouse, health care, self-storage, residential, retail and data centers. It pays a monthly distribution of 8 cents per share, which equates to a 7.8% distribution rate based on the current market price. Investors should note that RQI is considered higher-risk given that the CEF can employ leverage, currently set at 29% of its portfolio.
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7 Best Funds to Hold in a Roth IRA originally appeared on usnews.com
Update 10/22/25: This story was previously published at an earlier date and has been updated with new information.
