What You Can Hold Inside a Roth IRA

You can invest in stocks, bonds, mutual funds, ETFs, and CDs inside a Roth IRA

A Roth IRA is a container — it holds investments, but it is not itself an investment. Once you open one, you fund it with money, and that money buys whatever investments you choose. The most common choices are individual stocks, mutual funds, exchange-traded funds (ETFs), bonds, and certificates of deposit (CDs). Your brokerage or bank will let you pick from their available options, and the investments you choose determine whether your money grows slowly or quickly over time.

The real advantage of a Roth IRA is not what goes inside it — it is what happens to the growth. Money you invest grows tax-free, and you can withdraw it tax-free in retirement. That tax shelter works the same whether you own one stock or a diversified fund. The choice of what to buy is separate from the choice to use a Roth IRA at all.

Key Takeaways

• Stocks, bonds, mutual funds, ETFs, and CDs are the main investment types you can hold in a Roth IRA, and most brokerages offer all of them.
• Your brokerage controls which specific investments are available to you — you cannot buy anything they do not offer, even if it is a legal Roth IRA investment.
• Diversified funds (mutual funds and ETFs) are simpler for beginners because one purchase spreads your money across many companies or bonds.
• Individual stocks let you pick specific companies but require more research and carry more risk if you choose poorly.
• The growth inside a Roth IRA is tax-free regardless of what you invest in, so your choice should be based on risk and return, not tax strategy.

Stocks and how they work in a Roth IRA

A stock is a small piece of ownership in a company. When you buy one share of Apple, you own a tiny fraction of Apple. If the company grows and becomes more valuable, your share becomes worth more. If the company shrinks or fails, your share becomes worth less or worthless. You can also receive dividends — small cash payments the company sends to shareholders — though not all stocks pay them.

Inside a Roth IRA, you can buy individual stocks through your brokerage's trading platform. You pick the company, decide how many shares to buy, and place the order. The stock sits in your account and grows (or shrinks) with the company's performance. When you sell it, any profit is not taxed — that is the Roth advantage. The downside is that picking individual stocks requires research. If you choose a company that fails, you can lose money. Most people who are new to investing find this riskier than they want.

Mutual funds and ETFs as simpler alternatives

A mutual fund is a basket of stocks or bonds managed by a professional. You buy one share of the fund, and your money is automatically spread across dozens or hundreds of holdings. An ETF (exchange-traded fund) works the same way but trades like a stock during the day instead of settling once per day. Both let you own many companies with a single purchase, which reduces risk because one bad company does not sink your whole investment.

Most beginners choose funds over individual stocks because the work is done for you. A fund manager or a computer algorithm picks the holdings, rebalances them, and handles the details. You straightforward buy the fund and let it grow. Common fund types include index funds (which track a market index like the S&P 500), actively managed funds (where a manager tries to beat the market), and target-date funds (which automatically shift from stocks to bonds as you near retirement). Inside a Roth IRA, all growth is tax-free, so the fund's internal trading does not create a tax bill for you.

Bonds and fixed-income investments

A bond is a loan you make to a company or government. They borrow money from you, promise to pay you interest, and return your principal on a set date. Bonds are less risky than stocks because the company must pay you before it pays shareholders, and the payment is fixed — you know exactly what you will receive. The trade-off is lower returns. A bond might pay 4 or 5 percent per year, while a stock might pay 8 or 10 percent (or lose 20 percent).

You can buy individual bonds or bond funds inside a Roth IRA. Individual bonds are useful if you want to hold them until maturity and know your exact return. Bond funds are useful if you want diversification or do not have enough money to buy many individual bonds. As you get closer to retirement, many people shift from stocks toward bonds because they need stability more than growth. Inside a Roth IRA, the interest you earn is not taxed, which makes bonds slightly more attractive in a Roth than in a regular taxable account.

Certificates of deposit (CDs) for may provide returns

A CD is a savings product where you give a bank your money for a fixed period — three months, one year, five years — and the bank pays you a set interest rate. At the end of the period, you get your money back plus interest. CDs are the safest investment because the bank guarantees the return and the FDIC insures your deposit up to $250,000. The downside is that rates are low (usually 4 to 5 percent) and you cannot touch the money without a penalty.

You can hold CDs inside a Roth IRA through most banks and brokerages. They are useful if you are very close to retirement and cannot afford to lose money, or if you want a portion of your Roth to be completely safe while the rest grows in stocks or funds. Because CDs pay interest, that interest is normally taxed in a regular account — but inside a Roth IRA, it is not. This makes CDs slightly more valuable in a Roth than elsewhere, though the low returns mean they are usually not the main holding.

What you cannot hold in a Roth IRA

The IRS has a short list of things that are not allowed in a Roth IRA. You cannot hold collectibles (art, stamps, coins, memorabilia), precious metals (with a narrow exception for certain gold and silver coins and bars), life insurance, or short sales. You also cannot hold investments that are not yet created or that are too exotic — your brokerage will straightforward refuse to let you buy them inside the Roth.

In practice, this does not matter for most people. Stocks, bonds, funds, and CDs cover nearly everything a typical investor wants to own. If you ever want to buy something unusual, your brokerage will tell you it is not allowed in a Roth IRA, and you can decide whether to buy it in a regular taxable account instead.

How to choose what to invest in

Your choice should depend on three things: how much time you have until retirement, how much risk you can handle, and how much time you want to spend managing the account. If you have 30 years until retirement and can handle seeing your balance drop 20 percent in a bad year, stocks or stock funds are appropriate. If you have 5 years until retirement and need the money to be there, bonds or CDs are more appropriate. If you do not want to think about it, a target-date fund automatically adjusts the mix for you.

A common approach for beginners is to buy a single low-cost index fund that tracks the entire stock market, or a target-date fund that matches your retirement year. This gives you diversification, low fees, and minimal work. As you learn more, you can add individual stocks or bonds if you want. The Roth IRA itself does not care what you choose — the tax benefit applies equally to any investment inside it.

Frequently Asked Questions

Can I change my investments after I buy them?

Yes. You can sell any investment inside your Roth IRA and buy a different one. There is no tax on the sale, no penalty, and no limit on how often you trade. This is one of the major advantages of a Roth IRA — you can experiment and adjust without worrying about capital gains tax.

What if I do not know which investment to pick?

Start with a target-date fund or a total market index fund. Both require almost no knowledge and give you when ready diversification. You can always change it later. Many people hold the same fund for decades and do fine.

Do I have to pick the same investment every year?

No. Each year when you contribute, you can buy a different investment if you want. Most people buy the same fund or stock repeatedly, but you are not required to.

Can I hold cash inside a Roth IRA?

Yes. Your Roth IRA account has a cash balance, and you can leave money sitting there without investing it. However, cash does not grow, so it defeats the purpose of a retirement account. Most people keep only enough cash to cover their next purchase.

What happens if my investment loses money?

You lose money, but you do not owe taxes on the loss. If you sell at a loss, you cannot deduct it from your taxes (unlike in a regular account). You can hold the investment and wait for it to recover, or sell and buy something else.