What is one key difference between a traditional IRA and a Roth IRA?

One key difference between a traditional IRA and a Roth IRA is that traditional IRA contributions are tax-deductible. This means that individuals who contribute to a traditional IRA can deduct those contributions from their taxable income in the year they make the contribution, potentially lowering their overall tax bill for that year. This tax benefit can make traditional IRAs appealing for individuals looking to reduce their current tax liability while saving for retirement.

In contrast, Roth IRA contributions are made with after-tax dollars, meaning that individuals do not receive a tax deduction for their contributions. However, the benefit of a Roth IRA is that qualified withdrawals in retirement are tax-free, including both contributions and earnings, which can result in significant tax savings later on.

The options related to pre-tax contributions or restrictions on withdrawals do not accurately capture the primary distinctions between the two accounts, as they either misstate the nature of the accounts or confuse the conditions under which contributions can be made.