What You Can Hold Inside a Roth IRA

You can invest in stocks, bonds, mutual funds, and exchange-traded funds inside a Roth IRA

A Roth IRA is a container that holds investments — it is not itself an investment. Once you open the account, you choose what to buy inside it. The IRS does not restrict you to any particular type of investment. Most people hold a mix of stocks and bonds, either by buying individual securities or by buying mutual funds and ETFs that bundle many securities together.

The real power of a Roth IRA is the tax treatment, not the investments themselves. Whatever you buy inside grows tax-free, and you withdraw it tax-free in retirement. That means you can take more aggressive risks in a Roth than you might in a regular taxable account, because you will not owe taxes on the gains.

Your brokerage — the company that holds your Roth IRA — determines what investments are available to you. Most major brokerages offer thousands of choices. Some smaller or specialized brokerages may limit you to their own products.

Key Takeaways

• You can hold stocks, bonds, mutual funds, ETFs, and some alternative investments inside a Roth IRA, depending on your brokerage.
• The IRS prohibits certain investments like collectibles, life insurance, and short sales, regardless of which brokerage you use.
• Most people build a diversified portfolio by mixing stock funds and bond funds rather than picking individual stocks.
• Your choice of brokerage determines your investment options, so compare what each one offers before opening an account.

Stocks and stock mutual funds

You can buy individual company stocks inside a Roth IRA. This means you own a piece of that company, and you keep any dividends it pays. If the stock price rises, that gain is locked into your Roth tax-free.

Most people do not pick individual stocks for their entire Roth. Instead, they buy stock mutual funds or stock ETFs — funds that hold dozens or hundreds of stocks at once. This spreads your risk across many companies. A fund that tracks the S&P 500, for example, holds shares in 500 large U.S. companies. If one company struggles, the others cushion the blow.

Stock funds come in two main types. Actively managed funds have a manager who picks stocks they think will outperform the market. Index funds straightforward hold all the stocks in a particular index, like the S&P 500 or the total U.S. stock market. Index funds typically charge lower fees because no one is actively picking stocks.

Bonds and bond mutual funds

A bond is a loan you make to a company or government. They pay you interest over time, then return your principal at maturity. Bonds are generally less volatile than stocks — they do not swing up and down as much — but they also produce lower returns over long periods.

Like stocks, you can buy individual bonds or bond funds. Individual bonds are straightforward: you know exactly when you will get your money back and how much interest you will earn. Bond funds hold many bonds and fluctuate in price, but they let you invest a small amount and get when ready diversification.

Bond funds are often sorted by type: government bonds (backed by the U.S. Treasury), corporate bonds (issued by companies), or high-yield bonds (riskier bonds that pay more interest). Many people use a bond fund as the stable, lower-risk portion of their Roth portfolio.

Exchange-traded funds and target-date funds

ETFs are funds that trade on a stock exchange like individual stocks do. They hold a basket of securities — stocks, bonds, or both — and you buy them the same way you buy a stock. ETFs typically have low fees and are very tax-efficient, which matters less inside a Roth (since everything is tax-free anyway) but is still a bonus.

Target-date funds are a specific type of fund designed for retirement. You pick the fund that matches your expected retirement year — for example, a 2050 target-date fund if you plan to retire around 2050. The fund automatically shifts from stocks to bonds as you get closer to that date, becoming more conservative over time. This is a hands-off way to build a balanced portfolio.

Many people use a single target-date fund as their entire Roth IRA investment. This gives them a diversified mix of stocks and bonds without having to rebalance or make decisions year to year.

What the IRS does not allow in a Roth IRA

The IRS prohibits certain investments inside any IRA, including a Roth. You cannot hold collectibles — art, antiques, stamps, coins (with narrow exceptions for certain U.S. minted coins), or memorabilia. You cannot hold life insurance policies. You cannot short-sell securities or use margin (borrowed money) to buy investments.

You also cannot hold investments that are not yet issued or that are not traded on a recognized market. This rules out private equity, most real estate, and cryptocurrency in most cases, though the rules around crypto are still evolving and vary by brokerage.

If you accidentally buy a prohibited investment, the IRS can penalize you or force you to remove it. Most brokerages will not let you place the order in the first place, so this is rarely a problem in practice.

How to choose what to invest in

Your choice depends on your age, how much risk you can tolerate, and how much time you want to spend managing the account. A common approach is the three-fund portfolio: one U.S. stock fund, one international stock fund, and one bond fund. This gives you broad diversification with minimal effort.

If you are young and have decades until retirement, you can afford to hold mostly stocks, since you have time to ride out market downturns. If you are closer to retirement, a higher bond allocation protects you from sharp losses. If you do not want to think about it, a target-date fund does the rebalancing for you.

Compare the fees charged by different funds. A fund with a 0.05% expense ratio costs far less over time than one charging 1%. Over decades, that difference compounds significantly. Most index funds and ETFs charge low fees; actively managed funds tend to be more expensive.

How to open a Roth IRA and start investing

You open a Roth IRA through a brokerage — a company like Fidelity, Vanguard, Charles Schwab, or many others. Each brokerage offers different investments, different tools, and different account minimums (some have none). Compare what each one offers before you choose.

Once your account is open, you fund it by transferring money from your bank. Then you place an order to buy the investments you want, the same way you would buy a stock. The money sits in your account until you invest it, earning no interest.

You can contribute up to a set dollar amount each year (the limit varies by year and is higher if you are age 50 or older). You can also roll over money from a traditional IRA or an old 401(k) into a Roth, though this has tax consequences you should understand before doing it.

Frequently Asked Questions

Can I change what I invest in after I open my Roth IRA?

Yes. You can buy and sell investments inside your Roth as often as you want without tax consequences. You can shift from stocks to bonds, move money between funds, or change your entire strategy. This is one advantage of a Roth over a taxable account — you can rebalance without triggering capital gains taxes.

What if I do not know anything about investing?

A target-date fund is designed for this situation. You pick the fund matching your retirement year, and the fund handles all the decisions. Alternatively, many brokerages offer robo-advisors — automated services that build and manage a diversified portfolio for you based on your age and risk tolerance.

Should I pick individual stocks or funds?

Most people are better off with funds. Individual stocks require research and carry company-specific risk. Funds spread that risk across many companies and require no ongoing decisions. Unless you enjoy researching companies and have time to monitor them, funds are the simpler path.

Can I hold real estate or cryptocurrency in a Roth IRA?

Most brokerages do not offer these options. Real estate typically requires a self-directed IRA from a specialized custodian. Cryptocurrency rules vary by brokerage and are still evolving; some brokerages offer it, others do not. Check with your brokerage about what is available.

What happens if I invest poorly and lose money in my Roth?

Your losses stay inside the Roth. You cannot deduct them on your taxes the way you can with losses in a taxable account. This is one reason to diversify — spreading money across many investments reduces the chance of a total loss.