Don’t Leave Tax Savings on the Table: How to Conduct a Midyear IRA Checkup

Ivanna Hampton: Welcome to Investing Insights. I’m your host, Ivanna Hampton. Consider getting your IRA in shape this summer instead of waiting for the calendar to flip to next year. A midyear checkup could help you optimize your retirement account to benefit from its tax advantages sooner than later. Morningstar’s FundInvestor newsletter has highlighted investment ideas for folks who want to keep it simple, maximize tax advantages, or strive for capital appreciation. Morningstar senior principal of ratings Russ Kinnel is here to share his favorite fund ideas for an IRA.

It’s good to see you, Russ.

Russel Kinnel: Great to be here.

Hampton: Let’s get some IRA basics out of the way. First, what is an IRA? And second, how much can investors contribute in 2026?

Kinnel: An IRA is a way to invest and have your money deferred tax-free over time. And you can invest either $7,500 if you’re under 50, or if you’re over 50, $8,600 per year, and you can invest anytime during the year.

Hampton: What has been your strategy regarding your own IRA?

Kinnel: Well, I’ve got my money in a Roth IRA, and I just have Vanguard Capital Opportunity VHCAX, which I own as my one fund. And I’ve just let that grow over time.

Hampton: You’re keeping it simple.

Kinnel: Very simple.

Hampton: All right. So, you’ve divided your favorite IRA ideas into three buckets. And it’s no surprise that the target-date funds fell into the keeping-it-simple category. How does Vanguard Target Retirement 2030 VTHRX make it easy?

Kinnel: Vanguard target-date funds are great because they just have a few index funds, they really haven’t changed them too much, and they have a glide path, which means over time, as you approach that retirement date, they gradually adjust. The basic idea is you add a little more bond exposure over time and less stock exposure, but the costs are very low. It’s very straightforward, and it’s very wide-ranging. You’ve got wide-ranging stock funds, which means you’re covering a lot of ground, good diversification, low costs, doesn’t change much, very low maintenance.

Hampton: Balanced funds are also another one-stop option. Can you describe how T. Rowe Price Balanced Fund RPBAX helps investors dial down portfolio risk?

Kinnel: So, it’s a nice mix of stock and bond strategies with a bunch of really good underlying T. Rowe funds. So, if you like T. Rowe funds, some of your favorites may well be in this fund, and it’s just another simple way to get diversification very quickly.

Hampton: That T. Rowe Price Fund is US-centric. Would Vanguard Total World Stock Index VTWAX be a solid choice for investors seeking global exposure?

Kinnel: Absolutely. Most US investors are a little too heavily invested in the US and could do with a little more foreign exposure. So, a world stock fund or a foreign stock fund will help you to fix that a bit. And so, Vanguard Total World Stock, as the name implies, is a global index, very diversified, covers all the big companies, and very low costs. Got a lot going for it.

Hampton: Next up are IRA ideas for maximizing tax advantages. Which strategies are better suited in this case, and how can retirees use these funds when they’re in a drawdown mode?

Kinnel: There are some income-oriented funds like high-yield or bank-loan that generate income, and they also have the benefit when they’re in an IRA, and you’re not paying taxes on them because income is taxable. So, if you have a high-yield fund or a bank-loan fund or a TIPS fund in your IRA, you’re not going to be paying taxes along the way. But then, when it comes time to actually start spending that money, that income is a nice sort of source of funds for you to spend in retirement. It works on a couple of levels.

Hampton: Two high-yield funds appear on your favorites list. Can you describe why you like Fidelity Capital & Income FAGIX?

Kinnel: Fidelity Capital & Income is a nice, aggressive fund. They’ve got high-yield bonds, they’ve got sometimes cash, they’ve got equities, and they’ll adjust tactically among them. As a result, they’ve done a really nice job with that. The funds got top-percentile performance over all the long-term periods. Now, they got there with a fair amount of risk, both in terms of having more equity exposure and having occasionally a fair amount of fairly risky side of high yield in there. It’s a fairly risky strategy, but they’ve done a great job.

Hampton: Why does PGIM High Yield PBHAX stand out to you?

Kinnel: I think this is a more traditional high-yield fund, and it’s kind of a pure high-yield fund, but PGIM has a great depth of analysts and managers, so it can kind of consistently deliver good exposure to high yield.

Hampton: So, I could have just said “P-GEM” instead of PGIM.

Kinnel: You could.

Hampton: Pimco Income PONAX sits in Morningstar’s multisector bond category. What strategies do Dan Ivascyn and his comanagers deploy?

Kinnel: Just about all of them. You get a little of everything. They’ve got a lot of mortgages, and some of that’s nonagency mortgages, and the important part about that is it’s not guaranteed the way regular government mortgages are. But you also have emerging markets, corporate bonds, foreign bonds, some foreign-currency exposure. Dan Ivascyn does a really good job of bringing all that together and, as the name implies, with an income focus.

Hampton: The third bucket, into big number three, aims to take the most advantage of tax-free compounding by focusing on capital appreciation. What makes American Funds New World Fund NEWFX appealing as a long-term play? And before you can say it, I can say it. You own this fund.

Kinnel: That’s right. I’ve got it. It’s in our 401(k), and I own it. It’s a really nice emerging-market play in that it owns emerging-market stocks that are in emerging markets but also owns companies that do business there. So, it’s a little tamer than your average emerging-market fund, but Capital Group is a very deep team of managers and analysts. And so you’ve got that stability that, let’s say, you’re putting in an IRA that you’re going to hold for 25 or 30 years, Cap Group is a deep enough team that you can have a lot of confidence that it’ll still be well run 10, 15, 20 years down the road.

Hampton: The final two capital appreciation funds sit in value and growth. Let’s start with value. Why do you like Dodge & Cox Global Stock DODWX?

Kinnel: Dodge is another deep organization, and I really like they have pretty low expenses. They’re very good at attracting and retaining top talent. And so this is another example of just a firm that’s very stable, and I have a lot of confidence will be there for the long haul. And as you say, this is a value-oriented shop. So, you’re definitely going to get more in the value sectors, a little less in the traditional growth sectors like tech and healthcare, but a really good long-term play.

Hampton: Now your growth pick is Vanguard Primecap VPMAX. Why should investors consider this one?

Kinnel: I mentioned earlier Vanguard Capital Opportunity, which is also run by Primecap. This one is the same shop. They’re just very good growth investors based out of Pasadena. Good analysts, good managers, very long-term focused. They tend to have a bit of a healthcare tilt within growth. That’s noteworthy, especially in the times of AI. It means maybe you don’t get quite as much of a pop from AI, but you’re also not as exposed to AI hurting your plays as well. But Primecap’s proven to be a really good long-term investment.

Hampton: Could any of the funds that we discussed also work in a Roth IRA?

Kinnel: Absolutely. So, a Roth is one where you contribute aftertax dollars, and then when you take money out in retirement, you don’t get taxed. Whereas a traditional IRA, you contribute now, you get a tax benefit, but when you take the money out, then you have to pay taxes.

Hampton: So what’s the takeaway for investors who are considering doing this midyear check and considering these funds?

Kinnel: I think you can invest in an IRA any time. It gets most of the attention at the annual April deadline, but you can invest at any point, and it’s really worth thinking about at any time. Include that in your strategy for your overall portfolio because it’s really good to have diversified not just by investment type but also by taxable type. So, if your other investments are in taxable accounts, it’s nice to have some tax-deferred accounts as well.

Hampton: Russ, thank you for coming to the table and discussing your favorite ideas for an IRA.

Kinnel: You’re welcome.

Hampton: That wraps up this week’s episode. Thanks for making this show part of your day. A couple of reminders: Give Investing Insights five stars on Apple Podcasts to help others find the work we’re producing for you and subscribe to Morningstar’s YouTube channel to watch new videos from our team. Thanks to senior video producer Jake VanKersen. I’m Ivanna Hampton, editorial multimedia manager at Morningstar. Take care.