ObjectiveWell‐being is a psychological resource that buffers against age‐related disease. We test whether this protective effect extends to dementia and whether it is independent of distress.MethodsParticipants (N = 10,099) were from the Health and Retirement Study. Five aspects of positive psychological functioning (life satisfaction, optimism, mastery, purpose in life, and positive affect) were tested as predictors of incident dementia over 6 to 8 years.ResultsPurpose in life was associated with a 30% decreased risk of dementia, independent of psychological distress, other clinical and behavioral risk factors, income/wealth, and genetic risk. After controlling for distress and other risk factors, the other aspects of well‐being were not associated with dementia risk.ConclusionsAfter considering psychological distress, we found that measures of well‐being were generally not protective against risk of dementia. An exception is purpose in life, which suggests that a meaningful and goal‐driven life reduces risk of dementia.