Which ETFs Are Best Kept in Retirement Accounts?

By Russell Wild

Some ETFs are best kept in retirement accounts due to their ability to avoid tax hits. Not all investments, however, should be kept only in retirement accounts. Here are ETFs and other investments generally best kept in a retirement account:

  • Taxable bond ETFs. Examples include

    • iShares IBoxx $ Investment Grade Corporate Bond (LQD)

    • iShares Barclays TIPS Bond Fund (TIP)

    • PowerShares Emerging Markets Sovereign Debt Portfolio (PCY)

  • ETFs that invest in real estate investment trusts (REITs). Examples include

    • Vanguard REIT Index ETF (VNQ)

    • iShares Cohen & Steers Realty Majors Index Fund (ICF)

    • SPDR Dow Jones Global Real Estate (RWO)

  • High-dividend ETFs. Examples include

    • WisdomTree Total Dividend Fund (DTD)

    • SPDR Dividend (SDY)

    • iShares Dow Jones Select Dividend Index Fund (DVY)

  • Actively managed funds, whether mutual funds or ETFs

Some ETFs, however, are best kept in taxable accounts to allow for, among other options, removing money before the age of retirement. Here are ETFs and other investments generally best kept in a taxable account:

  • Cash reserve for emergencies.

  • Stock ETFs, except for the highest dividend-paying funds. Examples include

    • Vanguard Russell 3000 ETF (VTHR)

    • iShares Morningstar Large Growth (JKE)

    • Guggenheim S&P 500 Pure Growth (RPG)

  • Foreign-stock ETFs. Examples include

    • iShares S&P Europe 350 (IEV)

    • Vanguard Pacific ETF (VPL)

    • BLDRS Emerging Markets 50 ADR (ADRE)

  • Municipal-bond ETFs. Examples include

    • iShares S&P National Municipal Bond Fund (MUB)

    • SPDR Nuveen Barclays Capital Municipal Bond (TFI)

    • PowerShares Insured National Municipal Bond Portfolio (PZA)

  • Exchange-traded notes (ETNs), other than currency ETNs, which are not nearly as tax-efficient as other ETNs. Examples include

    • ELEMENTS S&P Commodity Trends Indicator ETN (LSC)

    • iPath Dow Jones-USB Commodity Index Total Return ETN (DJP)

    • iPath MSCI India Index ETN (INP)