Can You Hold ETFs in a Traditional IRA?

Can you hold ETFs in a traditional IRA

Individual retirement accounts (IRAs) allow you to invest pre-tax dollars towards building retirement wealth. ETFs are popular investments that provide broad market index or market segment exposure while trading like stocks throughout the day and being less costly than mutual funds.

Dividend ETFs offer another way of supplementing your income; their income distributions are tax-deferred, making them ideal for IRAs.


ETFs tend to be more tax-efficient than mutual funds, making them a good option for IRA accounts. But that doesn’t mean they entirely escape taxes; those with high turnover could still face taxes, and those that generate income that is partially or fully taxed, like municipal bond interest may still incur fees and pay taxes accordingly.

TD Ameritrade offers a selection of commission-free ETFs designed to help you build a portfolio tailored to your financial goals and risk tolerance. These ETFs include growth and income ETFs that offer broad diversification; others track specific indices or market segments. Leveraged ETFs use derivatives or debt to boost returns, amplifying gains while amplifying losses simultaneously.

Investors should remember that ETFs linked to precious metals don’t hold physical ownership of the metals underlying them; rather, they hold futures and options contracts representing ownership of said metals. Therefore, those holding precious metal ETFs in taxable accounts could face up to 28% capital-gains tax rate while those storing them in an IRA bypass this problem altogether.


ETFs tend to be more cost-efficient than mutual funds, but it’s still important to consider your investing goals and risk tolerance before selecting one. For instance, those interested in retirement income might prefer ETFs that pay dividends or have low expense ratios; otherwise they may help diversify your portfolio with sector-specific or international stocks; some even offer leveraged trading, enabling investors to boost returns from an index that they follow.

Investors can also select inverse ETFs, which move in the opposite direction of the stock market index they follow. Investors must be mindful that such ETFs may magnify losses as well as gains and do not qualify for tax benefits like traditional brokerage accounts that allow margin trading – an important distinction from inverse ETFs that move opposite of their trackers.

Leveraged trades

Individual retirement accounts (IRAs) provide investors with a tax-deferred way to invest pretax dollars for the future tax-free. Mutual funds were traditionally the mainstay for diversifying portfolios and accessing various asset classes through an IRA, however ETFs have recently overtaken mutual funds as preferred vehicles for index or market segment exposure, being both less costly than mutual funds and offering daily trading like stocks – making them much more liquid investments than their predecessors.

ETFs are increasingly popular in taxable accounts due to their relative tax efficiency. Unlike actively managed mutual funds, which often make large capital gains distributions that result in large tax bills for investors.

ETFs offer another attractive feature for investors: automated monthly savings contributions into your IRA account, which may help avoid trying to time the market and may lower investment costs.

Investment strategies

An individual retirement account (IRA) can hold virtually every type of investment imaginable, such as stocks, bonds, mutual funds, unit investment trusts, exchange-traded funds (ETFs), and real estate. ETFs are particularly appealing since they trade like stocks during market hours and give investors access to various asset classes in one product. It’s wise, however, for investors considering ETFs with high turnover or income-generating characteristics to do research first before investing; some income-generating ETFs may create tax bills when their distributions reach investors.

To avoid these taxes, investors can turn to exchange-traded funds (ETFs) that track broad market indexes like the S&P 500 for tax efficiency and low costs. Such ETFs offer low costs and broad diversification – perfect for an IRA portfolio. They may also consider inverse ETFs that move opposite of an index or benchmark; such ETFs can provide similar returns as short selling without needing margin trading – they usually require lower minimum investments than mutual funds and may provide greater tax efficiency as well.

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