Balancing a Roth IRA with a 401(k), traditional IRA, and a brokerage account can be complicated. Each account type has different benefits and tax treatments, so under ideal circumstances, each will fill a different role in your financial plan.

That doesn't mean investors should alter their asset allocation strategies or investment choices based on the sorts of accounts they're using. What it does mean is that they should make sure that they're holding each asset in the  account that suits it best. 

For example, retirees with Roth IRAs should aim to take advantage of their tax-free distributions to maximize current lifestyle or net returns from growth. There are several ETFs that are perfectly suited to these functions, and they might find an ideal home in a Roth rather than another account type. 

Side-stepping income taxes

Excluding Social Security and the possibility of part-time work, retirees are largely reliant on their accumulated assets for the cash flow required to meet basic needs and maintain a lifestyle. Funds can always be sourced by liquidating investments, but this increases longevity risk, especially early in retirement. As a result, dividends and bond interest are very important for providing income without depleting holdings.

Dividends and interest are typically taxed as ordinary income, which can substantially reduce the spending power of those cash flows. However, dividends and interest that flow into a Roth IRA can be withdrawn from it without any tax incurred, thereby improving lifestyle without changing allocation at all.

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There are numerous exchange-traded funds that focus on delivering dividend income to holders. The iShares Core High Dividend ETF (NYSEMKT:HDV) allocates based on two proprietary screens that are designed to ensure sustainability through economic moats and financial health. It provides liquidity, risk mitigation, a relatively high distribution yield, and a very reasonable expense ratio, all of which are important to retirees. The iShares International Select Dividend ETF (NYSEMKT:IDV) is an alternative to HDV that employs a similar methodology to pick stable and high-yielding companies from global developing markets. It can be a useful tool to increase diversification and gain extra exposure to smaller yet stable companies around the world. 

Retirees seeking income from real estate investments should consider the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ:VNQI). The fund owns international REITs and real estate management and development companies that are located in both emerging and developed markets. This large and liquid ETF is has delivered an excellent 7.24% distribution yield in 2020, with a lean 0.12% expense ratio.

A good place to maximize growth

Some retirees prioritize future spending power over current lifestyle. This is especially true for people who are concerned about outliving their savings, fear high inflation, or anticipate substantial healthcare spending needs late in life. While no portfolio should be highly volatile in retirement, investors fitting the above description are likely to earmark a small portion of the allocation for growth. When you're 65, you should have a plan for meeting your cash flow needs at least 15 years into the future, so it's not silly to continue seeking growth from some holdings.

Growth investments incur capital gains tax upon liquidation in brokerage accounts or ordinary income tax upon distribution from a 401(k) or Traditional IRA. Both can substantially reduce the net gains from the best-performing assets. This makes the Roth IRA a great place for growth holdings for any retiree who is prioritizing future spending power over current lifestyle. 

The iShares Russell 1000 Growth ETF (NYSEMKT:IWF) is a popular fund that selects companies with promising growth outlooks. It is somewhat uncommon in that it holds both large-cap and mid-cap stocks, though it tends to be heavily skewed toward tech giants due to selection methodology and cap weighting. IWF has outperformed the S&P during growth periods, but volatility means that results can suffer in bear markets.

The Global X Thematic Growth ETF (NASDAQ:GXTG) offers an uncommon alternative strategy that provides exposure to high potential stocks around the world. The fund-of-funds invests in sector-focused ETFs that are experiencing high revenue expansion. Performance has been strong since inception, but the fund has a limited operating history and a relatively high 0.5% expense ratio, so retirees should understand the risks inherent with this investment. 

There are plenty of great ETFs for achieving growth, but the above offer compelling substitutions for simple S&P 500 exposure. Retirees need to be careful about limiting exposure to volatile growth funds, but these ETFs can improve long-term outcomes if used appropriately.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.