Can You Own ETFs in an IRA?

Can you own ETFs in an IRA

The IRS lays down specific guidelines defining which assets can be included in an Individual Retirement Account (IRA). ETFs provide investment simplicity, diversification and low costs.

ETFs offer greater liquidity than mutual funds, allowing investors to purchase or sell shares throughout the trading day at market prices.

ETFs typically boast lower expense ratios than mutual funds and don’t charge front- or back-end loads, making them attractive alternatives. However, some ETFs like leveraged ETFs may amplify returns and losses exponentially so extra caution should be exercised when considering them as potential investments.

Expense Ratios

ETFs offer lower expense ratios than mutual funds, saving investors money. Many ETFs are passively managed, further reducing expenses. Furthermore, ETFs tend to trade intraday on exchanges like stocks so investors can buy and sell at any time during the day.

When selecting an ETF for your IRA, be sure to consider both its gross and net expense ratios. The former represents the cost of investing without taking into account fee waivers or reimbursements; its counterpart – net expense ratio – includes these factors but it’s essential that both are understood.

Investment in funds with low costs can have a profound impact on your long-term returns. A 1% annual fee may seem inconsequential at first glance, but over time every dollar that leaves your account due to fees will reduce returns significantly. You can quickly locate an ETF’s net expense ratio using Yahoo Finance or similar financial apps.


Many investors mistakenly believe they require a portfolio of individual stocks in order to build wealth, but that may not always be the case. Patient investors can often achieve comparable returns with an ETF portfolio held within an IRA where taxes on any investment gains become nonexistent when withdrawing funds in retirement.

ETFs are generally considered tax efficient due to their in-kind creation and redemption process, which helps minimize capital gains distributions compared to some mutual funds. But this doesn’t mean they are tax free – any realized gains or losses when selling shares will still be taxed accordingly.

ETFs that distribute dividend payments may make an ideal addition to an IRA account, provided they won’t affect your tax bill too significantly. Schwab U.S. Dividend Equity ETF SCHD holds high-yielding companies like Valero Energy VLO and Texas Instruments TXN that provide reliable dividend payments that are taxed at your ordinary income tax rate (unless eligible for long-term capital gains taxation rates).

Leveraged ETFs

ETFs and mutual funds are popular choices for an Individual Retirement Account (IRA), yet each type has unique operational nuances that should be understood before selecting investments for their portfolios. Understanding these distinctions can enable investors to make more informed decisions when selecting investments for their IRA portfolios.

Leveraged ETFs strive to achieve daily returns that are multiples (2x or 3x) of those of an index or benchmark, using financial instruments like futures and options as means. Unfortunately, these financial instruments also come with associated costs like transaction fees, bid/ask spreads and management fees which can eat away at their returns over extended periods.

Investors should also be mindful that gains on leveraged ETF sales are reported on a “marked-to-market” basis and may result in capital gain distributions, especially during times of volatility. Therefore, before investing in any leveraged ETF they should consult their tax advisor. Tax treatment of leveraged ETFs may differ from that of other forms of investments depending on factors like holding period length, dividend payments and capital gains realized.


Before adding ETFs to your IRA portfolio, it is crucial that you fully comprehend all of the nuances surrounding them and define your investment goals and risk tolerance. ETFs offer an effective means of diversifying and accessing different market segments and asset classes.

ETFs offer transparency daily and reveal their holdings, providing more informed decision making about which assets comprise your IRA portfolio.

Gold ETFs can easily be integrated into an IRA, particularly one with self-directed options that permits alternative investments. To do this, however, it is crucial that you work with a custodian that specializes in handling alternative assets while meeting all IRS guidelines to maintain eligibility of inclusion for an IRA account and protect its tax-advantaged status – NerdWallet offers a list of recommended providers offering self-directed IRA accounts.

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