Which retirement plan is funded with after-tax contributions and offers tax-free qualified withdrawals?

Which retirement plan is funded with after-tax contributions and offers tax-free qualified withdrawals?

• A. Roth IRA
• B. Traditional IRA
• C. 401(k)
• D. 403(b)

Answer: (B)

Funded with after-tax contributions and providing tax-free qualified withdrawals describes a Roth account. When you contribute to a Roth, you use after-tax dollars, so you don’t get an upfront tax deduction. The money grows tax-free, and withdrawals in retirement are tax-free if the distributions are qualified—typically meaning you’re at least 59½ and the account has been open for at least five years. Traditional IRAs are usually funded with pre-tax (or deductible) contributions, so withdrawals are taxed as ordinary income. Employer plans like 401(k) and 403(b) are generally funded with pre-tax dollars, with taxes due on withdrawals (though Roth versions exist, they follow a different treatment).

Funded with after-tax contributions and providing tax-free qualified withdrawals describes a Roth account. When you contribute to a Roth, you use after-tax dollars, so you don’t get an upfront tax deduction. The money grows tax-free, and withdrawals in retirement are tax-free if the distributions are qualified—typically meaning you’re at least 59½ and the account has been open for at least five years. Traditional IRAs are usually funded with pre-tax (or deductible) contributions, so withdrawals are taxed as ordinary income. Employer plans like 401(k) and 403(b) are generally funded with pre-tax dollars, with taxes due on withdrawals (though Roth versions exist, they follow a different treatment).