Final answer:
The correct statement about traditional IRAs is that contributions are tax-deductible. While traditional IRAs offer tax-deferred growth, Roth IRA contributions are not tax-deductible, as they are made with after-tax dollars.
Step-by-step explanation:
The question is about identifying the accurate statement regarding traditional individual retirement accounts (IRAs). Among the statements given, the correct one is that contributions are tax-deductible. In a traditional IRA, individuals can direct pretax income towards investments, which then grow tax-deferred, meaning that there are no taxes on capital gains or dividend income until withdrawal. Statement b is true because distributions are indeed penalty-free after age 59½. Statement c is also true as early withdrawals before reaching the age of 59½ may incur a penalty. However, statement d is false, since Roth IRA contributions are made with post-tax dollars and are not tax-deductible.
Traditionally, these retirement savings vehicles are a critical component of retirement planning, particularly because they offer tax-deferred growth, which can significantly affect the compound growth of retirement savings. Understanding the differences between traditional IRAs and Roth IRAs, like the deductibility of contributions and the taxation of distributions, is important for effective financial planning and retirement preparation.