ETFs in IRAs, Roth IRAs and 401(k)s: What Should You Know?

By Adam Patti, Chief Executive Officer, VistaShares | Published November 13, 2026

ETFs can be held in most individual retirement accounts and in many workplace plans, and the account an ETF sits in often matters as much for taxes as the fund itself. In traditional IRAs and 401(k)s, investments grow tax-deferred and withdrawals are generally taxed as ordinary income, while in Roth accounts contributions are made with after-tax money and qualified withdrawals are generally tax-free. This article explains the general rules; investors should consult a tax advisor about their own situation.

What are the main account types?

Taxable brokerage accounts. No contribution limits or withdrawal restrictions. Distributions are generally taxed in the year received, and gains or losses are realized when shares are sold.

Traditional IRAs. Contributions may be tax-deductible, depending on income and whether the investor or a spouse is covered by a workplace plan. Investments grow tax-deferred, and withdrawals are generally taxed as ordinary income.

Roth IRAs. Contributions are made with after-tax money and are not deductible. Investments grow tax-free, and qualified withdrawals are generally tax-free. Eligibility to contribute phases out at higher incomes.

401(k) and similar workplace plans. Employer-sponsored plans that may offer traditional pre-tax contributions, Roth contributions or both, often with employer matching.

What are the 2026 contribution limits?

For 2026, the IRS set the annual employee deferral limit for 401(k), 403(b), governmental 457 plans and the Thrift Savings Plan at $24,500. Participants aged 50 and older may contribute an additional $8,000, and a higher catch-up limit of $11,250 applies to participants aged 60 through 63 under the SECURE 2.0 Act.¹

The annual IRA contribution limit for 2026 is $7,500, with an additional catch-up contribution of $1,100 for individuals aged 50 and older.¹ Income limits apply to Roth IRA contributions and to the deductibility of traditional IRA contributions.

Can ETFs be held in each account?

IRAs and Roth IRAs opened at a brokerage can generally hold any ETF available on the platform.

401(k) plans offer a menu of investment options chosen by the plan sponsor. Many plans offer mutual funds, collective investment trusts or target-date funds rather than ETFs. Some plans include a self-directed brokerage window that allows participants to buy ETFs.

Health savings accounts and other tax-advantaged accounts may also allow ETF investments, depending on the provider.

How does taxation differ inside retirement accounts?

Inside traditional and Roth retirement accounts, distributions from ETFs, such as dividends, interest, capital gains and option premium, are generally not taxed when paid. Buying and selling ETFs within the account generally does not create current taxable gains or losses. Taxes, if any, apply when money is withdrawn from a traditional account, and qualified withdrawals from a Roth account are generally tax-free.

That means the tax character of a fund’s distributions, which matters greatly in a taxable account, generally does not affect current taxes inside a retirement account. For example, the distinction between qualified dividends, ordinary income and return of capital, explained in our article on distributions versus dividends, generally does not change an investor’s current tax bill when the fund is held in an IRA.

How do investors decide which ETFs go where?

The practice of placing investments in the accounts where their tax treatment is most favorable is often called asset location. General considerations include:

Income-generating funds. Funds that distribute significant ordinary income, such as many bond funds and some option income funds, may be candidates for tax-deferred accounts, where distributions are not currently taxed. Our article on how covered call ETFs are taxed explains why option income can matter in taxable accounts.

Funds with growth potential. Holdings expected to grow substantially may be considered for Roth accounts, where qualified growth can be withdrawn tax-free.

Broad equity index funds. Funds that distribute modest amounts may be suitable for taxable accounts, where long-term gains and qualified dividends may receive favorable rates.

Funds with foreign tax withholding. International funds held in taxable accounts may allow investors to claim a foreign tax credit, which is generally not available inside IRAs. Our article on international and emerging-market ETFs discusses this.

These are general considerations, not rules, and the right placement depends on each investor’s tax bracket, time horizon and overall plan.

Can ETFs be moved between accounts?

ETFs held in one IRA can generally be transferred in kind to another IRA at a different firm without selling, through a trustee-to-trustee transfer. Moving assets between a taxable account and a retirement account, however, generally involves a contribution or withdrawal subject to the rules and limits for that account.

What about losses inside retirement accounts?

Losses on investments inside IRAs and 401(k)s generally cannot be deducted. In a taxable account, realized losses can offset gains and, within limits, ordinary income. This is another factor in deciding where to hold more volatile funds.

Do required minimum distributions apply?

Traditional IRAs and traditional 401(k)s are generally subject to required minimum distributions beginning at age 73 under current law.² Roth IRAs do not require withdrawals during the original owner’s lifetime, and under the SECURE 2.0 Act, Roth accounts in workplace plans are no longer subject to lifetime required distributions beginning in 2024.² ETFs held in these accounts can be sold, or in some cases transferred in kind, to satisfy required distributions.

What else should investors know?

Rebalancing inside retirement accounts generally does not create current taxes, making these accounts useful for adjusting allocations. Our article on rebalancing an ETF portfolio covers approaches.

Early withdrawal rules. Withdrawals from retirement accounts before age 59½ may incur a 10% additional tax, subject to exceptions.

Wash sale rules can apply across taxable and retirement accounts if substantially identical securities are bought in an IRA within 30 days of a loss sale in a taxable account.

Our article on how to buy an ETF explains opening accounts and placing orders, and more introductory topics are covered in our ETF basics guide. Investments involve risk, including possible loss of principal.

Frequently asked questions

Can I buy ETFs in my 401(k)?

It depends on the plan. Many 401(k) plans offer only a set menu of mutual funds or target-date funds. Some include a self-directed brokerage window that allows participants to buy ETFs. The plan’s investment options and documents explain what is available.

Are ETF dividends taxed in an IRA?

Generally not when paid. Dividends and other distributions received inside a traditional or Roth IRA are not taxed in the year received. Withdrawals from traditional IRAs are generally taxed as ordinary income, and qualified Roth withdrawals are generally tax-free. Rules for early withdrawals also apply.

Should I hold bond ETFs in a retirement account?

Many investors consider placing bond funds and other funds that distribute significant ordinary income in tax-deferred accounts, because those distributions are not currently taxed there. The right choice depends on the investor’s overall allocation, tax bracket and account balances. A tax advisor can help.

What is asset location?

Asset location is the practice of deciding which investments to hold in taxable, tax-deferred and tax-free accounts based on how each is taxed. It is different from asset allocation, which decides how much to invest in each asset class. Both can affect after-tax results.

Can I claim a loss on an ETF in my IRA?

Generally, no. Losses on investments held inside an IRA cannot be deducted on a tax return. Losses realized in a taxable account can be used to offset capital gains and, within limits, ordinary income, subject to rules such as the wash sale rule.

Cite this page: Adam Patti, "ETFs in IRAs, Roth IRAs and 401(k)s: What Should You Know?," VistaShares, updated November 13, 2026, https://www.vistashares.com/etfs-in-iras-roth-iras-and-401ks/. Plain-text version.

This material is provided for educational purposes only. It is not investment, legal or tax advice, and it is not a recommendation or an offer to buy or sell any security. Information is drawn from sources believed to be reliable as of the date of publication, is not guaranteed as to accuracy or completeness, and may change without notice. Figures attributed to third parties are their estimates. Projections and forecasts are not guarantees of future results. Investors should consult their own financial, legal and tax professionals before making investment decisions. Investments involve risk, including possible loss of principal. ETF shares are bought and sold at market price, which may differ from net asset value, and brokerage commissions and other trading costs may apply.