Best mutual funds for Roth IRA in 2025—how to grow retirement savings without the tax burden

The Roth IRA is one of the best tools investors have for growing their retirement nest eggs without worrying about capital gains taxes.

Introduced in 1997 under the Taxpayer Relief Act, the Roth IRA was designed as a flexible alternative to traditional savings, giving Americans the ability to fund their retirement at any age.

“Roth IRAs are an attractive financial savings vehicle because investors can contribute to them regardless of age and take advantage of tax-free income in retirement, with no required minimum distribution, unlike a traditional IRA, which requires distributions at age 73,” said Tiana Patillo, a financial adviser with Vanguard.

Individuals looking to supercharge their retirement savings and earn tax-free income in their golden years will find a Roth IRA highly advantageous. However, it’s not always clear what assets they should invest in or what strategies they should use.

That’s where mutual funds come into play.

Managed by professional portfolio managers, mutual funds pool money from many investors to buy assets such as stocks, bonds, alternative investments, and other securities. Mutual funds are ideal for diversification, which helps retirement savers minimize risk over time.

Best mutual funds for Roth IRA

Choosing the best mutual funds for a Roth IRA depends on fees, growth potential, diversification benefits, and fund reputation. Investors should consult with a financial adviser before funding a Roth IRA.

Below is a list of six mutual funds retirement savers should consider for their accounts.

Mutual Fund	Expense Ratio
Vanguard Dividend Growth Fund (VDIGX)	0.29%
Fidelity 500 Index Fund (FXAIX)	0.015%
FPA Crescent Fund (FPACX)	1.08%
Fidelity Blue Chip Growth Fund (FBGRX)	0.47%
Vanguard Total International Stock Index Fund (VTIAX)	0.12%
Vanguard Total Bond Market Index Fund (VBTLX)	0.05%

Vanguard Dividend Growth Fund (VDIGX)

The Vanguard Dividend Growth Fund invests in U.S. companies that pay dividends. These dividend payers are typically large, well-established firms with strong balance sheets. The VDIGX invests in stocks from various industries, such as technology, consumer staples, and healthcare.

There are currently 42 stocks in VDIGX, representing a total market capitalization of nearly $180 billion. The average annual earnings growth rate of these companies over the past five years is 10.3%.

VDIGX makes a strong addition to a Roth IRA because it provides capital appreciation and dividend income. This means investors can potentially benefit from rising stock prices and recurring dividend payments—something that becomes much more important heading into retirement.

VDIGX has a low expense ratio of 0.29%, which is the fee deducted from the fund’s annual dividend and capital gains returns.

The Vanguard Dividend Growth Fund has seen positive returns in 15 of the last 16 years, making it one of the best dividend mutual funds. It’s fully invested in U.S. stocks, which means it has a slightly higher risk profile than other mutual funds. This is why diversification is important.

Fidelity 500 Index Fund (FXAIX)

The Fidelity 500 Index Fund is one of the most popular mutual funds, holding nearly $620 billion in assets under management. Its success boils down to providing investors with one of the most cost-effective ways of investing in the S&P 500 Index.

FXAIX provides broad market exposure, encompassing all of the companies and sectors that comprise the benchmark S&P 500 Index. Historically, investing directly in the S&P 500 or mutual funds that track the benchmark index has been much less risky than investing in individual stocks.

As the S&P 500 Index has surged over the past two years, so has FXAIX. Since the start of 2023, FXAIX has returned roughly 60%.

An expense ratio of just 0.015% means investors are only charged $1.50 annually for every $10,000 invested in the fund. As part of a Roth IRA, the Fidelity 500 Index Fund is seen as an important driver of a portfolio’s long-term growth.

FPA Crescent Fund (FPACX)

The FPA Crescent Fund is an actively managed fund that takes a more cautious approach to growing and preserving wealth.

FPACX invests in several asset classes, including U.S. and global stocks, bonds, alternative investments, and cash. This inherent flexibility allows the fund’s managers to adapt to a changing market environment.

As of Sept. 30, 2024, the fund’s portfolio structure was 60.5% common stocks, 31.5% cash and cash equivalents, 3.5% credit fixed income, and 4.5% in other investments.

The fund has an “absolute return focus,” which means only investments with a conservative risk-reward profile are considered. According to the fund’s documents, this investment approach takes “less risk than the market and [avoids] permanent impairment of capital.”

As an actively managed fund, FPACX has a higher expense ratio of 1.08%. The fund has more than $10.6 billion in assets under management.

As part of a well-balanced Roth IRA, FPACX offers diversification benefits, helping investors minimize large portfolio fluctuations.

Fidelity Blue Chip Growth Fund (FBGRX)

The Fidelity Blue Chip Growth Fund is an actively managed fund that invests primarily in so-called “blue chip” stocks, or established companies with large market capitalizations. These are some of Wall Street’s biggest firms, such as Nvidia, Apple, Amazon.com, Microsoft, Alphabet, Meta, and Netflix.

The mutual fund invests heavily in sectors with high growth potential, which means technology and consumer discretionary are overrepresented. As such, it’s considered to have a slightly higher risk profile than other funds with broad exposure to the U.S. stock market.

FBGRX holds more than $67 billion in assets under management and carries a slightly higher management fee of 0.47%. A higher expense ratio is expected, given that the fund is actively managed by Fidelity’s portfolio team.

Over the past ten years, FBGRX has outperformed the Russell 1000 Growth Index and similar large growth portfolios. For Roth IRA investors, FBGRX has the potential to provide long-term growth through America’s largest companies.

Vanguard Total International Stock Index Fund (VTIAX)

The Vanguard Total International Stock Index Fund invests in a broad range of international stocks, giving U.S. investors exposure to global markets. With an expense ratio of just 0.12%, VTIAX offers one of the most affordable ways to invest in developed and emerging economies around the world.

Outside the United States, VTIAX has no geographical limits. As of Nov. 30, 2024, the portfolio’s regional composition was 38.4% Europe, 27% emerging markets, 26.2% Pacific, 7.9% North America (outside the U.S.), and 0.5% Middle East.

VTIAX invests in stocks, fixed-income, and short-term reserve assets. Its holdings include large semiconductor companies, government bonds, and liquidity funds providing income.

Although VTIAX is riskier than other mutual funds, it can be used for portfolio diversification, especially for investors who mainly hold U.S.-based funds.

Geographic diversification also means investors aren’t over-exposed to geopolitical and economic risks affecting one country or region.

Vanguard Total Bond Market Index Fund (VBTLX)

The Vanguard Total Bond Market Index Fund invests in U.S. investment-grade bonds, including U.S. Treasurys, mortgage-backed securities, and corporate bonds.

As of Nov. 30, 2024, VBTLX had invested in 11,314 bonds with an average duration of 6 years. More than two-thirds (68.2%) of the fund’s assets are invested in U.S. government bonds. This broad exposure means VBTLX is lower risk, helping investors reach their diversification and risk-reward targets.

One of the biggest benefits of investing in VBTLX in a Roth IRA is the very low expense ratio of just 0.05%. This fee is barely noticeable on investments of $1,000 or more.

Funds like VBTLX aren’t meant to wow investors with their total returns. Rather, they’re supposed to provide stability and capital preservation, especially during rocky periods for the stock market.

VBTLX provides predictable interest payments, which can be useful for income-focused Roth IRA accounts.

Diversification matters for your Roth IRA

Roth IRA investors should select mutual funds that align with their long-term investment goals and risk tolerance.

Focusing on long-term growth, diversification, and an appropriate balance of risk and return can better prepare investors for retirement. Emphasizing low-cost mutual funds means more money in your pocket over the long term.

Investors who are still deciding about their Roth IRA strategy should consult with a financial adviser, who can give them more insights into how to construct their portfolio. A financial professional can also advise on portfolio rebalancing and how to optimize their strategy based on their proximity to retirement.