Final answer:
Qualified distributions from both Roth IRA and Roth 401(k) plans are excluded from federal income tax. Contributions are made with after-tax dollars, allowing for tax-free growth and withdrawals under qualified conditions.
Step-by-step explanation:
The feature shared by both Roth IRA and Roth 401(k) plans is that qualified distributions from both are excluded from federal income tax. This means that while contributions to both Roth IRA and Roth 401(k) are made with after-tax dollars, the distributions, including the earnings, are tax-free as long as certain conditions are met. Unlike traditional IRAs and 401(k)s, which are tax-deferred, Roth accounts allow your investments to grow tax-free, and you don't owe taxes on withdrawals in retirement. However, unlike traditional accounts, contributions to Roth accounts are not tax-deductible.
Both Roth IRA and Roth 401(k) plans are examples of defined contribution plans, focusing on the individual's contribution to their retirement savings. Contributions are made after-tax, and the growth of the investment is not subject to tax at the time of withdrawal, assuming the account has been held for a certain period and the account holder is above a specific age, among other qualifications.