One of the pillars of the U.S. retirement system, Social Security, is facing a long-term funding problem. Under current projections, by 2033 payroll taxes may no longer be sufficient to pay 100% of scheduled benefits without changes from Congress. The roots of the problem stretch back decades.
According to the Center for Retirement Research at Boston College, Social Security evolved from a system intended to build up reserves toward a largely “pay-as-you-go” model, where taxes collected from today’s workers finance benefits for today’s retirees.
Amendments in 1939 expanded the program by tying benefits more closely to average earnings and adding benefits for spouses and survivors. As the retiree population subsequently grew relative to the workforce, particularly with the aging baby boomer generation and declining fertility rates, that financing model came under increasing pressure.
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Congress responded with major Social Security amendments in 1983. Changes included temporarily delaying cost-of-living adjustments, increasing payroll taxes and gradually raising the full retirement age from 65 to 67. Those reforms extended the system’s solvency, but demographic trends ultimately proved less favorable than originally projected. Another constraint is that Social Security’s trust funds invest in special-issue U.S. Treasury securities rather than higher-returning equities.
For U.S. workers, that uncertainty reinforces the importance of building retirement savings independently through accounts such as workplace 401(k) plans and individual retirement accounts, or IRAs. One particularly valuable option is the Roth IRA.
Contributions to a Roth IRA can generally be withdrawn without paying taxes or fees. To withdraw the earnings on your investment tax-free, you must be at least 59½ years old and have had the account open for at least five years. In the meantime, capital gains, dividends and interest generated inside a Roth IRA can be reinvested without tax drag.
For 2026, investors can contribute up to $7,500, with an additional $1,100 catch-up contribution available to those age 50 and older. However, eligibility is restricted at higher incomes. Roth IRA contributions begin phasing out at modified adjusted gross income of $153,000 to $168,000 for single and head-of-household filers and $242,000 to $252,000 for married couples filing jointly, with direct contributions unavailable once income exceeds the top of those ranges.
That combination of substantial tax advantages and limited annual contribution room makes fund selection especially important. Investors must decide which assets can make the best use of scarce Roth IRA space while still matching their time horizon, risk tolerance and overall asset allocation.
“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.”
Here are seven of the best funds to hold in a Roth IRA:
| Fund | Expense Ratio |
| Vanguard Dividend Growth Fund (ticker: VDIGX) | 0.20% |
| Vanguard Wellington Fund Investor Shares (VWELX) | 0.24% |
| Fidelity Contrafund (FCNTX) | 0.74% |
| JPMorgan Equity Premium Income ETF (JEPI) | 0.35% |
| JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) | 0.35% |
| Schwab U.S. REIT ETF (SCHH) | 0.07% |
| Schwab High Yield Bond ETF (SCYB) | 0.03% |
Vanguard Dividend Growth Fund (VDIGX)
“Roth IRAs are especially beneficial for younger investors because there is greater saving potential due to that tax-free compounding,” says Tiana Patillo, a financial advisor manager at Vanguard. For example, VDIGX’s 1.3% 30-day SEC yield can be reinvested inside a Roth IRA without setting aside a portion for current taxes. The fund charges a 0.2% expense ratio and requires a $3,000 minimum investment.
VDIGX maintains a concentrated portfolio of 51 stocks with a median market capitalization of $264 billion. Unlike index-based dividend growth strategies that require a set number of consecutive annual payout increases, VDIGX is actively managed. That gives its managers greater discretion to overweight or underweight individual stocks and sectors based on their fundamentals and macro outlook.
Vanguard Wellington Fund Investor Shares (VWELX)
“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,” Patillo explains. VWELX’s balanced allocation of two-thirds stocks and one-third bonds could make it a sensible allocation for many retirees.
That mandate has helped VWELX compound at an 8.4% annualized total return since its 1929 inception, although that figure is measured before taxes. Its above-average 2.1% 30-day SEC yield makes the tax-free treatment available within a Roth IRA particularly useful. Despite being actively managed, VWELX charges a 0.24% expense ratio and carries Vanguard’s usual $3,000 minimum investment.
Fidelity Contrafund (FCNTX)
“We typically recommend owning mostly growth-oriented investments, like stocks, to maximize the return potential over time,” says Brandon Clark, director of financial planning at the Clark Group Asset Management. Despite its name, FCNTX fits that description, falling within Morningstar’s large-cap growth category. A high annual turnover rate of 29% makes this fund a good candidate for a Roth IRA.
FCNTX has been managed by William Danoff since 1990 and has strongly outperformed the S&P 500 over the trailing 10 years, returning 17.3% annualized versus 15.1%. However, Danoff plans to retire at the end of 2026, with two co-managers appointed by Fidelity in April 2025 positioned to succeed him. Investors also pay substantially more than for an index fund, with FCNTX carrying a 0.74% expense ratio.
[Read: 7 Best Schwab ETFs for Retirement]
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,” Clark says. “In addition, this account is usually the most advantageous for beneficiaries because they inherit the funds tax-free as well.” Roth IRA investors in the withdrawal stage may find JEPI’s 7.9% 30-day SEC yield appealing.
This ETF uses equity-linked notes (ELNs) to replicate the payoff of a one-month, out-of-the-money S&P 500 covered call strategy while maintaining capital efficiency. However, that structure generally lacks the potentially more favorable return-of-capital treatment frequently seen with some newer options-income ETFs. In a Roth IRA, JEPI’s ordinary income treatment largely becomes a non-issue.
JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)
JEPQ is JEPI’s higher-risk counterpart, using a similar ELN-based strategy but applying it to the more volatile Nasdaq-100 index. That higher underlying volatility can generate greater option premiums, helping JEPQ produce a much higher 15.1% 30-day SEC yield based on its most recent distributions. Despite the higher income potential, JEPQ charges the same relatively low 0.35% expense ratio.
JEPQ’s distributions have historically included substantial ordinary income, which can be taxed at both federal and state levels when held in a taxable account. By comparison, return-of-capital distributions from some competing options-income ETFs generally reduce an investor’s cost basis, deferring taxes until shares are sold. Holding JEPQ inside a Roth IRA can therefore shelter its tax-inefficient distributions.
Schwab U.S. REIT ETF (SCHH)
Stock dividends can be qualified or non-qualified, with qualified dividends generally receiving more favorable long-term capital gains tax rates, while non-qualified dividends are taxed as ordinary income. For example, REITs tend to generate more non-qualified income because they generally must distribute at least 90% of taxable income to maintain REIT status and avoid corporate-level taxation.
Inside a Roth IRA, however, that annual tax drag is largely eliminated. SCHH is a potential low-cost candidate for a Roth IRA with a 0.07% expense ratio. It tracks the Dow Jones Equity All REIT Capped Index, which excludes mortgage REITs that primarily invest in leveraged mortgage-backed securities rather than owning physical real estate. SCHH currently offers a 3.3% 30-day SEC yield.
Schwab High Yield Bond ETF (SCYB)
Bond ETF taxation largely depends on the securities held in the underlying portfolio. Treasury interest is generally exempt from state and local income taxes, while municipal bond income is often exempt from federal income tax. Corporate bond income, by contrast, is generally taxed as ordinary income at both the federal and state levels, creating a potentially significant tax drag that hurts total returns.
That makes corporate bond ETFs worth prioritizing for tax-advantaged accounts such as a Roth IRA, particularly high-yield bond fund variants like SCYB. Its below-investment-grade bond portfolio carries greater credit risk but compensates investors with a higher 7% 30-day SEC yield. SCYB is also one of the more affordable junk bond ETFs available, charging a low 0.03% expense ratio.
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7 Best Funds to Hold in a Roth IRA originally appeared on usnews.com
Update 08/11/26: This story was previously published at an earlier date and has been updated with new information.
