Which statement about a Roth IRA is true?

Which statement about a Roth IRA is true?

• A. Contributions are not tax deductible and qualified distributions are tax free.
• B. Contributions are tax deductible and withdrawals are taxed as ordinary income.
• C. All distributions are taxed as capital gains.
• D. Roth IRAs require mandatory annual withdrawals.

Answer: (A)

Contributions to a Roth IRA are made with after-tax dollars, so you don’t get a tax deduction for them up front. The payoff is that when you take a qualified distribution in retirement, withdrawals are tax-free, including both the money you put in and the earnings. This combination—no upfront deduction and tax-free withdrawals later—makes the statement true. To be qualified, the account generally must be at least five years old and you must be at least 59½ (or meet certain exceptions like disability or first-time home purchase). Because of this setup, distributions aren’t taxed as capital gains, and Roth IRAs don’t require mandatory annual withdrawals during the original owner’s lifetime.

Contributions to a Roth IRA are made with after-tax dollars, so you don’t get a tax deduction for them up front. The payoff is that when you take a qualified distribution in retirement, withdrawals are tax-free, including both the money you put in and the earnings. This combination—no upfront deduction and tax-free withdrawals later—makes the statement true. To be qualified, the account generally must be at least five years old and you must be at least 59½ (or meet certain exceptions like disability or first-time home purchase). Because of this setup, distributions aren’t taxed as capital gains, and Roth IRAs don’t require mandatory annual withdrawals during the original owner’s lifetime.