Which statement about Roth IRA contributions is true?

Which statement about Roth IRA contributions is true?

• A. Contributions may be deductible
• B. Qualifying withdrawals at retirement are tax-free
• C. The maximum annual contribution is based solely on earned income
• D. A five-year holding period is not required for qualified distributions

Answer: (B)

The statement that qualifying withdrawals at retirement are tax-free is accurate regarding Roth IRA contributions. One of the primary benefits of a Roth IRA is that, under certain conditions, the money you withdraw during retirement can be taken out without paying federal income taxes. This tax-free nature applies to both the contributions you made and the earnings on those contributions, provided that specific requirements are met, such as being at least 59½ years old and having held the account for at least five years. This characteristic is a significant advantage for individuals planning for retirement, as it allows for greater financial flexibility and potentially higher net income during retirement years. Understanding this benefit is crucial for anyone considering different retirement savings options.

The statement that qualifying withdrawals at retirement are tax-free is accurate regarding Roth IRA contributions. One of the primary benefits of a Roth IRA is that, under certain conditions, the money you withdraw during retirement can be taken out without paying federal income taxes. This tax-free nature applies to both the contributions you made and the earnings on those contributions, provided that specific requirements are met, such as being at least 59½ years old and having held the account for at least five years.

This characteristic is a significant advantage for individuals planning for retirement, as it allows for greater financial flexibility and potentially higher net income during retirement years. Understanding this benefit is crucial for anyone considering different retirement savings options.