Best Roth IRA Investments

Because capital gains, dividend income and interest income on investments inside a Roth IRA aren’t taxable, how people invest the money in a Roth IRA can benefit from a bit of strategy. The less tax-efficient an investment is, for example, the bigger the benefit of holding it in a Roth IRA instead of a taxable brokerage account or even a traditional IRA.

To make the most of your investment, here's how to choose investments for your Roth IRA.

How should you invest in a Roth IRA?

That's up to you and your investment goals, but in general, consider holding in a Roth any investments that have:

• High growth potential, such as individual stocks that could dramatically rise in value.

• Generous dividends, including real estate investment trusts (REITs) or other investments that provide regular streams of income.

• High levels of buying and selling, such as actively managed mutual funds.

• Frequent trading events, where investor activity triggers taxable events.

What are the best assets for a Roth IRA?

In general, the best assets for a Roth IRA are investments with high total return prospects, particularly over a long period of time. Slow-growing investments, such as money market funds or certificates of deposit, are less attractive assets for a Roth IRA because their returns probably won't cause a huge tax burden down the road. Investments that pay dividends may also be a good fit (provided you reinvest them) because dividends can boost returns over time, and those reinvested dividends don't count toward your contribution limit.

Considering this, some of the best investments for a Roth IRA might include:

• Small-cap stocks and ETFs.

• International stocks (particularly emerging market companies or funds that focus on holding these types of companies).

• High-dividend stocks.

• High-dividend ETFs.

Although these investments help maximize untaxed growth, they also come with considerable risk.

• Small-cap stocks tend to be unproven companies with volatile stock prices.

• High dividend stocks don’t necessarily have reliable dividends, so they may not be a suitable choice for long-term retirement investing.

• Highly diversified equity funds (a fancy way of saying index funds and ETFs that contain hundreds or even thousands of stocks) may be a solid middle ground. Their long-term growth potential is higher than CDs or money market funds, but they're generally less volatile than individual stocks.

• One of the most popular is an S&P 500 ETF, which tracks the performance of the S&P 500 index. Since all these ETFs attempt to mirror the S&P 500, a key differentiator might be their expense ratio.

Best ETFs for a Roth IRA

In addition to investing in an ETF that tracks the S&P 500, you could also invest in ETFs that track some of the asset options listed above, such as small-cap stocks, REITs, and high-dividend ETFs, to further diversify your Roth IRA and maximize its tax benefits. Below is a list of top-performing and popular ETFs across different categories.

Small-cap ETFs

Emerging market ETFs

High-dividend ETFs

REIT ETFs

When do you get taxed?

With both traditional and Roth IRAs, investment growth is generally not taxed as long as the money remains in the account. It’s when investors start taking distributions from their portfolios in retirement that the differences in tax treatment become clear.

• Traditional IRA: Withdrawals are taxed at the account holder’s ordinary income tax rate. At that point, you’ll owe taxes on both the earnings (which have grown tax-deferred) and your original contributions (which you may have already deducted on your income taxes).

• Roth IRA: Withdrawals of both contributions and earnings (which have grown tax-free) from a Roth IRA are typically not taxable as long as you've held the account for five years and are at least 59½. That's because you funded the account with money the IRS already taxed.

» Learn more about making a Roth IRA withdrawal

What else should you consider?

On top of taxes on withdrawals, there are other factors to keep in mind when picking your Roth IRA investments.

Tax characteristics. If an investment generates interest income that's already exempt from taxes, it doesn't need the tax benefit of a Roth account. For example, dividends paid on municipal bonds are already exempt from federal taxes.

Dividends from REITs, on the other hand, are not out of the IRS’ reach. And because REITs are known for generous dividends, the Roth can be an ideal home for this type of investment.

Frequency of trading activity and investments in the account. In a regular, taxable brokerage account, investors who trade in and out of positions frequently expose themselves to short-term capital gains taxes. Short-term capital gains, which are profits on investments held for one year or less, are usually taxed at a higher rate than long-term capital gains.

For active traders, a Roth IRA can be ideal: The IRS doesn’t even require you to report capital gains taxes each year. And, of course, qualified distributions in retirement are tax-free

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IRS. Roth IRAs. Accessed Jun 2, 2026. View all sources .

For the same reason, actively managed mutual funds with high turnover rates are well-suited to the Roth’s tax protections. (Side note: Passively managed funds — index mutual funds and ETFs, for example — have less internal buying and selling.)

Your timeline. Consider how long you can let the investment sit and when you might need the money. The longer you can let an investment ride, the higher the potential returns may be and the more money you may save by avoiding a tax bill when you eventually withdraw the money.