Can You Invest in ETFs in an IRA?

Can you invest in ETFs in an IRA

ETFs and mutual funds are both popular choices for IRA portfolios, yet each offers distinct operational differences that could help you make smarter investments for your retirement savings. Understanding their respective differences will allow you to make smarter choices when planning your IRA investments.

ETFs offer several distinct advantages over mutual funds in trading practices and expenses; ETFs can typically be traded throughout the trading day at market prices while mutual funds only trade at their end-of-day net asset value (NAV). Furthermore, they tend to incur less fees.


ETFs approved for use within an IRA are often designed to maximize long-term growth potential. Furthermore, these ETFs tend to be passively managed – meaning their portfolio manager doesn’t try to outwit the market – which means lower fees and potentially tax-efficient income over time.

Investors should carefully consider their goals, risk tolerance and time horizon before selecting an ETF for their Roth IRA. In addition, they should carefully study its expense ratios until finding one which suits their financial circumstances.

ETFs offer an effective way to diversify an IRA portfolio and gain exposure to different asset classes. But investors must be mindful that ETFs held in taxable accounts may generate taxable events such as capital gains and dividend distributions that must be reported and taxed, plus higher-income investors may incur a Medicare tax of 3.8% on net investment income (NII), potentially having an adverse effect on their retirement savings goals. Furthermore, investors must avoid investing in prohibited assets like precious metals or real estate which may incur penalties.


Roth IRA accounts can come with fees such as setup and broker commissions; whether these expenses are worth paying will depend on your financial circumstances and investment goals.

ETFs tend to be more tax-efficient than mutual funds due to their structure minimizing capital gains distributions that might create taxable events for investors. ETFs also disclose their holdings daily, giving investors full visibility into their portfolio.

Investors must conduct thorough research in order to select an ETF that best matches their needs and aligns with their investment goals, taking into account such things as its management team, expense ratio and historical performance. They should also consider any minimum investment requirements which may limit contributions or have additional costs such as load fees that might make the fund more expensive than similar mutual funds.


Individual Retirement Accounts (IRAs) allow individuals to invest after-tax dollars and potentially see tax-free growth over time. People can invest in various investment vehicles, including stocks and mutual funds. Some investors may even utilize ETFs.

ETFs often provide more diversification than their mutual fund counterparts and have lower fees and expenses, making them more suitable for IRA accounts. Furthermore, ETFs tend to minimize capital gains distributions compared to some mutual funds, making them tax-efficient options that offer greater diversification for less cost.

Ben, one of your suggestions today was Schwab US TIPS ETF SCHP which invests in Treasury Inflation-Protected Securities. Could you share more about this investment and why it might make an ideal addition to an IRA account? Thanks.


An Individual Retirement Account (IRA) offers an effective means of supplementing an individual’s finances; however, trading fees and expenses can eat away at potential returns.

To help lower costs, seek ETFs that track an index such as Charles Schwab US Dividend Equity ETF SCHD which offers low management fees, broad diversification and strong parent company support.

Before selecting an ETF, first establish your investment goals and risk tolerance. Are you seeking income or growth investments? Robo-advisor services may also assist in creating and managing your ETF portfolio; just be wary of any fees charged as these may significantly diminish overall returns. Likewise, make sure the assets in which the ETF invests match with your retirement goals; bond ETFs could generate capital gains distributions to investors that could be subject to tax.

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