Let’s face it—no one likes paying taxes. And if you’re planning for retirement, you know you can’t rely solely on Social Security to carry you through those golden years. That’s why building a Roth IRA is one of the smartest financial moves you can make. It’s not just a retirement account—it’s your future tax-free income engine.
But here’s the catch: not all ETFs are created equal. Some can supercharge your Roth, while others may leave you dragging. In this article, we’ll walk through 4 categories of ETFs that can turn your Roth IRA into a wealth-building machine—and which types to avoid if you want to maximize your returns.
First, What Is a Roth IRA?
A Roth IRA is a tax-advantaged retirement account where:
- You pay taxes upfront on the money you contribute.
- Once you hit age 59½, all your withdrawals are tax-free—including dividends, capital gains, and investment growth.
As personal finance expert Rob Berger says, the goal is to “make your Roth as fat as a tick.” Translation: pack as much long-term growth as you can into that account. Time is the ultimate factor with many accounts so if you can maximize the growth of the Roth IRA, you won’t have to pay the taxes on the gains.
Growth ETFs – Max Out the Compounding
If you want to maximize growth inside a Roth IRA, growth ETFs should be at the top of your list. These ETFs focus on companies that are reinvesting profits to expand and innovate. They’re more volatile—but in a Roth, that volatility is worth the long-term reward.
Top Growth ETFs:
- SCHG – Schwab U.S. Large-Cap Growth ETF (Expense ratio: 0.04%)
- VGT – Vanguard Information Tech ETF (Expense ratio: 0.09%)
- QQQ – Invesco QQQ Trust (Expense ratio: 0.20%)
- QQQM – Invesco QQQM Trust (Expense ratio: 0.15%)
Why they work: Growth ETFs tend to pay lower dividends, but that’s okay. The capital appreciation is where the magic happens—and in a Roth, you never pay taxes when you sell.
Cost Comparison (for $10,000 investment):
SCHG = $4/year
VGT = $9/year
QQQ = $20/year
Total Market ETFs – Simple, Broad, and Steady
Want to set it and forget it? Total market ETFs give you exposure to nearly every publicly traded company in the U.S.—from Apple to tiny up-and-comers.
Top Total Market ETFs:
- VTI – Vanguard Total Stock Market ETF
- SCHB – Schwab U.S. Broad Market ETF
Why they work: These ETFs offer built-in diversification, low volatility, and strong long-term returns. With ultra-low expense ratios (0.03% or less), they’re a no-brainer foundation for your Roth IRA.
S&P 500 ETFs – The Classic Core
S&P 500 ETFs track the top 500 U.S. companies, often considered the benchmark of the American economy. These are the companies that most people talk about. You think about Apple, Microsoft, Nvidia, and those other companies we commonly use. Having a piece of the top 500 companies is a great way to grow your Roth IRA.
Top S&P 500 ETFs:
- VOO – Vanguard S&P 500 ETF
- SPLG – SPDR Portfolio S&P 500 ETF
Why they work: If you want more concentrated exposure to top performers (think Microsoft, Apple, Nvidia), an S&P 500 ETF gives you more weight in those giants than a total market ETF. That’s a good thing in a Roth, where you want growth front and center.
Small-Cap Value ETFs – The Hidden Growth Driver
Historically, small-cap stocks have outperformed large-caps over the long term. And since small-caps come with higher risk, there’s no better place for them than in a tax-free growth engine like your Roth IRA.
Top Small-Cap ETFs:
- AVUV – Avantis U.S. Small Cap Value ETF (Expense ratio: 0.25%)
- VBR – Vanguard Small-Cap Value ETF (Expense ratio: 0.07%)
The stats don’t lie:
- 1927–2023: Small-caps averaged 13.1%, large-caps just 10.1%.
- 2000–2009: Small-caps up 12.3%, large-caps down 0.9%.
Roth IRAs are the ideal place to hold small caps because they allow you to capitalize on high returns without capital gains taxes down the line.
AVUV is a favorite amongst many investors due having some great small cap value companies as a part of them. If you are not a fan of the high expense ratio then choose VBR. Either way you are getting a great piece of the small cap sector.
What ETFs Not to Hold in Your Roth IRA
Even though Roth IRAs are amazing, not every ETF belongs there. We often see people wanting to avoid taxes so of course dividend ETFs may be on the chopping block. With the minimum growth, you will not be getting taxed on any capital gains. Here’s what to avoid if you want to maximize tax-free growth:
Dividend ETFs (e.g., SCHD, DGRO)
Dividend ETFs are great for those looking for solid dividend income while in retirement. You can add these to your Traditional IRA if you have one instead. The thinking behind this is that you need to sell your assets from your traditional IRA for retirement. Once you sell those you will get taxed on those pesky capital gains.
For many of these dividend ETFs, they will not grow as fast as those growth ETFs…meaning less gains. If you want to grow your Roth IRA as fast as possible stick to those top ETFs that have huge growth potential.
- They prioritize income over growth.
- Their gains are often slower.
- Great for taxable accounts or traditional IRAs—less ideal for Roths.
REIT ETFs
One of the best REIT ETFs out there is VNQ. It is a simple place to grab some exposure to the real estate market without having the physical locations. The question may be, why not REITs. The simple answer is not much capital growth. REITs in a taxable account would be silly since you are going to get taxed on those monthly dividends as ordinary income. You may want that, but if we are looking at growing that Roth IRA, you need to focus on the stocks that have capital appreciation.
- These real estate investment trusts pay high dividends, but have low growth.
- Better suited for traditional IRAs, where you’ll get deferred tax benefits on those large dividends.
Bond ETFs (e.g., VGLT, BND)
Bond ETFs have their place in people’s portfolios, but not in a Roth. They have grown an average of 3-5% yearly with minimum growth that will start to slow down your Roth money machine. So leave those bonds in a different account, and start to buy them as you get closer to retirement.
- Bond ETFs are stable but low growth.
- You want growth in a Roth. Save bonds for the years you actually need the income.
Final Thoughts
Your Roth IRA is not just another investment account—it’s your golden goose. By stacking it with high-growth, low-cost ETFs, you’re setting yourself up for a future of tax-free wealth.
Whether you go with SCHG for explosive growth, VTI for simplicity, or AVUV to tap into small-cap power, your goal should be clear:
Make your Roth fat. Make it grow. And let compound interest do the rest.
Steve Cummings is a journalist, personal finance creator that has specialized in saving and investing into ETFs. Steve founded Budgets Make Cents, and has been known for his personal finance advice and his passion for sports.
