You spent three or four decades contributing to a traditional 401(k), and Fidelity’s latest data puts the average balance for savers ages 65 to 69 at $258,800. That money received favorable tax treatment while you were working, but withdrawals from a traditional 401(k) are generally taxed as ordinary income. For married couples filing jointly in 2026, taxable income above $100,800 enters the 22% federal bracket, while income above $211,400 enters the 24% bracket.
That makes tax diversification an important part of retirement planning. Building assets alongside a traditional 401(k) can provide access to long-term capital-gains treatment, qualified dividends, and federally tax-exempt municipal-bond income, depending on the investment and account. Three ETFs can play different roles in that strategy: Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG), the iShares National Muni Bond ETF (NYSEARCA:MUB), and the Vanguard S&P 500 ETF (NYSEARCA:VOO).
The Tax Problem Behind the $258,800 Number
The named deduction on your 401(k) is deferred tax on the balance. Deferred does not mean forgiven. When required minimum distributions start, the IRS collects on decades of compounding at whatever your bracket happens to be that year (the fix starts years before the first required withdrawal, which is exactly what our free guide on the first-year tax bomb walks through). A Roth IRA, a Roth 401(k), and a well-built taxable brokerage account all sidestep some or all of that drag. The three ETFs below fit inside those wrappers cleanly and let you compound money the IRS has a much harder time reaching.
SCHG: The Growth Engine for Your Roth
SCHG tracks the Dow Jones U.S. Large-Cap Growth index, and the top of the portfolio reads like the AI economy’s roster: NVIDIA at 11.01% of assets, Apple at 9.83%, Microsoft at 7.17%, Amazon at 5.67%, and Broadcom at 4.55%. Growth stocks pay tiny dividends, which is exactly what you want inside a Roth or a taxable account. Less annual income means less to tax, and the reinvested capital appreciation you eventually harvest inside a Roth comes out federally tax-free. The fund carries roughly $61 billion in assets and a razor-thin expense ratio around 0.04%, meaning you keep about $996 of every $1,000 working. Performance has done its part: SCHG is up 15.15% over the past year and 441.85% over the past decade. Own it in your Roth and the IRS gets none of that gain.
MUB: Income the IRS Legally Cannot Touch
Municipal bond interest is exempt from federal income tax by statute. MUB packages roughly $40 billion in investment-grade national munis into one ticker with a 0.05% expense ratio. It pays monthly, and the trailing 12-month distribution totals $3.41 per share, with an annualized forward estimate near $3.44. That translates to a tax-free yield in the mid-3% range at the current $105.37 share price. Compare that to the 10-year Treasury at 4.71%: a saver in the 24% bracket keeps only about 3.6% of that Treasury yield after federal tax, so MUB competes head-on and wins for many state residents once local exemption is layered in. Total return has been steady rather than exciting, with the fund up 4.57% over the past year. And that is the point.
VOO: The Cheapest Way to Own America
VOO holds the S&P 500 at an expense ratio of 0.03%, which leaves $997 of every $1,000 compounding for you. Index ETFs rarely distribute capital gains thanks to their in-kind redemption structure, so held in a taxable brokerage account, VOO throws off only about $7.35 per share in qualified dividends annually, taxed at the friendlier 15% or 20% long-term rate. The fund has returned 20.69% over the past year and 314.68% over the past decade. Drop it in a Roth IRA and every dollar of that appreciation comes out tax-free after 59½.
The Real Trade-Off
None of these funds are without risk. Roth contributions use after-tax dollars, so if you are still in a peak-earning bracket today, converting or contributing means writing a check to the IRS now instead of later. MUB’s tax-exempt yield looks smaller on the label than a taxable bond fund, and if you fall into a lower bracket in retirement, that spread narrows. SCHG’s mega-cap concentration cuts both ways: those top five names dominate the upside and the drawdowns. For a retirement saver watching the tax bite on that $258,800 balance, though, the combination of a tax-free growth sleeve, tax-exempt income, and a low-cost index core is one of the cleanest defenses available.
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