Which of the following is true about a Roth IRA?

Which of the following is true about a Roth IRA?

• A. Contributions are tax-deductible
• B. Withdrawals in retirement are tax-free
• C. You must pay taxes on contributions
• D. There is no income limit for contributions

Answer: (B)

A Roth IRA, or Individual Retirement Account, is designed to allow individuals to contribute after-tax income, meaning contributions are made with money that has already been taxed. This is why withdrawals made during retirement can be tax-free. This unique feature of the Roth IRA makes it an attractive saving vehicle for many individuals planning for retirement, as it allows for tax-free growth of investments and tax-free withdrawals of both contributions and earnings after reaching a certain age, typically 59½, and maintaining the account for at least five years. Contributions to a Roth IRA are not tax-deductible, which is why the first choice is incorrect. Additionally, while it is true that you must pay taxes on contributions made to a Roth IRA (the third choice), this does not encompass the main advantages of the account. Lastly, there are indeed income limits for contributions to a Roth IRA, meaning higher earners may not be able to contribute directly, which makes the fourth choice inaccurate. Thus, the statement that withdrawals in retirement are tax-free accurately reflects one of the key benefits of a Roth IRA.

A Roth IRA, or Individual Retirement Account, is designed to allow individuals to contribute after-tax income, meaning contributions are made with money that has already been taxed. This is why withdrawals made during retirement can be tax-free. This unique feature of the Roth IRA makes it an attractive saving vehicle for many individuals planning for retirement, as it allows for tax-free growth of investments and tax-free withdrawals of both contributions and earnings after reaching a certain age, typically 59½, and maintaining the account for at least five years.

Contributions to a Roth IRA are not tax-deductible, which is why the first choice is incorrect. Additionally, while it is true that you must pay taxes on contributions made to a Roth IRA (the third choice), this does not encompass the main advantages of the account. Lastly, there are indeed income limits for contributions to a Roth IRA, meaning higher earners may not be able to contribute directly, which makes the fourth choice inaccurate. Thus, the statement that withdrawals in retirement are tax-free accurately reflects one of the key benefits of a Roth IRA.