7 Best Funds to Hold in a Roth IRA

If you’re looking to get ahead in 2025, creating a personal finance checklist is a great place to start.

For the average American, this might include maximizing 401(k) contributions to secure an employer match, paying down high-interest debt like credit cards or even contributing to a health savings account (HSA) if you’re enrolled in a high-deductible health plan.

One priority that might have escaped your notice is contributing to a Roth IRA. This highly versatile individual retirement account offers two standout advantages. Notably, investment earnings – whether from capital gains, dividends or interest – grow completely tax-free. Moreover, Roth IRAs have more flexible withdrawal terms compared to other retirement accounts. Contributions can be taken out anytime, and if you’re 59½ or older and have held the account for at least five years, both contributions and earnings can be withdrawn tax-free.

“Roth IRAs are an attractive financial savings vehicle because investors can contribute to them regardless of age and take advantage of tax-free income in retirement, with no required minimum distribution (RMD), unlike a traditional IRA, which requires distributions at age 73,” says Tiana Patillo, a financial advisor manager at Vanguard.

However, these benefits come with limitations. When Sen. William Roth introduced this account under the Taxpayer Relief Act of 1997, the goal was to help middle-class Americans save for retirement. Therefore, higher-income earners may find their ability to contribute restricted or phased out altogether.

For 2025, to make the full $7,000 contribution ($8,000 if you’re 50 or older), your modified adjusted gross income must be under $150,000 for single filers or under $236,000 for joint filers.

Given the Roth IRA’s tax benefits and contribution limits, it pays to be strategic about what kinds of funds you hold in this account.

“Generally, investors should allocate funds that are less tax-efficient in a Roth IRA,” says Lauren Wybar, senior wealth advisor at Vanguard. “For example, taxable bonds and real estate investment trusts, or REITs, make regular income payments, and actively managed stock funds are more likely to distribute taxable capital gains.”

Here are seven of the best mutual funds and exchange-traded funds (ETFs) to hold in a Roth IRA: