Mutual funds are a very good investment option for individual Roth retirement accounts (Roth IRAs). A few basic index funds, including exchange-traded funds (ETFs) and conventional mutual funds, may be sufficient to meet the diversification needs of most investors at minimal cost. At first glance, the tax efficiency of ETFs may seem to make them a favorite fund option, since they don't distribute capital gains regularly. However, capital gains are not taxable in a Roth IRA; therefore, ETFs lose one of their main advantages over mutual funds.
As a result, investors should consider both ETFs and mutual funds when considering investments for their Roth IRA. The investor can also open a Roth IRA account, or any IRA account, that invests in one or more mutual funds as part of its strategy to generate long-term wealth.