Final answer:
The correct option is A. It has a zero cost basis and grows tax-free.
The true statement about a tax-qualified annuity is that it has a zero cost basis and grows tax-deferred. Contributions are made with pre-tax dollars, and the earnings aren't taxed until withdrawal during retirement.
Step-by-step explanation:
Among the statements provided concerning a tax-qualified annuity, the true statement is that it has a zero cost basis and grows tax-deferred. A tax-qualified annuity means that the money you contribute to the annuity is money on which you have not yet paid taxes. The contribution is often made with pre-tax dollars, and then the earnings on the annuity investment grow tax-deferred until withdrawal. At the time of withdrawal, typically during retirement when one might be in a lower tax bracket, the distributions are taxed as ordinary income.
A Roth IRA, on the other hand, offers tax free growth and allows for tax-free distributions if qualified. With a Roth IRA, you contribute after-tax dollars, meaning you've already paid taxes on the money you're putting in. Then, the earnings grow tax-free, and qualified distributions are also tax-free. However, Roth IRAs come with maximum contribution limits and also have no required withdrawals at a certain age, unlike traditional IRAs or tax-qualified annuities which do have required minimum distributions after age 72.