Can You Own ETFs in an IRA?

Investors are increasingly turning away from costly mutual funds in favor of ETFs, as these low-cost investments may offer tax benefits and greater diversification potential.

An Individual Retirement Account (IRA) allows you to invest tax-deferred, so any gains won’t be taxed until withdrawals at retirement age.

However, when investing in ETFs inside an IRA account it is essential to take certain key considerations into account.


As is commonly stated, diversifying your investments helps minimize risk in case they experience an abrupt downturn. One effective method of diversification is separating investments among different asset classes such as stocks and bonds – stocks (also called equities) have higher returns potential but more risk than bonds (also called fixed income investments). Bonds (known as fixed income investments) provide some stability against excessive stock risk in an otherwise stock-heavy portfolio.

Investors wishing to diversify their portfolios use mutual funds or exchange-traded funds (ETFs) as an easy means. ETFs trade like stocks on the stock exchange and typically charge lower fees than mutual funds.


When investing in mutual funds or ETFs, your tax statement will reflect any gains as income. This amount represents the difference between your tax basis (the price paid for shares) and their sale price when sold at auction.

ETFs can make an excellent addition to an IRA portfolio, as they’re often less expensive than traditional mutual funds and provide more diversified investing strategies like dividend-paying or inverse investing.

IRAs also provide tax advantages, and by rolling assets from your employer’s retirement plan or other accounts into one you could potentially save considerable taxes. It is wise to seek assistance from a tax professional when rolling assets over into an IRA; they can help determine the most tax-efficient strategy based on your individual circumstances as well as provide guidance regarding asset location strategies.

Transaction Costs

Fees can have a profound effect on your investment portfolio, increasing the chance that money runs out during retirement and decreasing returns. Therefore, it is vitally important that you fully comprehend all fees associated with your IRA.

One common type of IRA fee is known as an expense ratio, which refers to the percentage of net assets dedicated to management, administration and marketing costs incurred when running mutual funds and ETFs.

An additional expense associated with trading often in an IRA can be brokerage commission fees, which can become prohibitively expensive when transacting often. You can find providers offering low commission rates or even waiving them altogether to make investing more affordable.


ETFs offer investors many advantages, from broad diversification and access to specific sectors to their ability to be leveraged. Leveraged ETFs leverage debt or derivatives in order to boost returns of the index they track while potentially amplifying losses – making these ETFs riskier investments overall.

As IRA investment guidelines are less well established than for other investment accounts, CPAs must carefully examine any IRS letter rulings and DOL ERISA opinion letters on IRA investments in order to identify trends that might sway their clients to invest in unconventional assets within an IRA.

Some brokerage firms will not permit their clients to utilize margin lending within a retirement account due to concerns that it constitutes a prohibited transaction, potentially subjecting its owner or any “disqualified person” involved to a 15% excise tax and penalties.

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