Final answer:
Contributions to a Roth IRA are not deductible and qualified distributions are not taxable, providing tax-free growth. This contrasts with Traditional IRAs and 401(k)s, which are tax-deferred with taxes paid upon withdrawal.
Step-by-step explanation:
Among the individual retirement accounts (IRAs) available, contributions are not deductible and qualified distributions are not taxable from a Roth IRA. Unlike a Traditional IRA, which is tax-deferred and taxes are paid upon withdrawal, the Roth IRA allows individuals to contribute after-tax income. The key benefit of the Roth IRA is its tax-free growth; meaning you owe no tax on your earnings as they accumulate and when you withdraw them at retirement age, provided certain conditions are met. This makes a Roth IRA especially beneficial for those who predict they will be in a higher tax bracket at retirement.
Defined contribution plans have largely replaced defined benefit pension plans, with options such as 401(k)s and 403(b)s. With 401(k) plans, both employer and employee contribute a fixed amount to the retirement account, which is tax deferred and the account is portable if the individual changes employers. The significant advantage of 401(k)s and other defined contribution plans is that they can generate real rates of return, helping to guard against inflation costs that can affect traditional pensioners.