Question

What characteristics generally distinguish a Roth IRA from a Traditional IRA? Check all that apply.

a. Minimum distribution rules apply to a traditional IRA beginning at age 70.5 but do not apply to a Roth IRA.
b. The amount a person can contribute to a Traditional IRA is limited by the IRC, but contributions to a Roth IRA are virtually unlimited.
c. Income and gains on a Traditional IRA are taxed when withdrawn. Roth IRA earnings are not subject to income tax.
d. After reaching age 70.5, a person cannot make additional contributions to a Traditional IRA but can continue to contribute to a Roth IRA.

Answer 1

A Roth IRA differs from a Traditional IRA in that it has no age limit on contributions and is funded with after-tax dollars, allowing tax-free growth and withdrawals.

Step-by-step explanation:

A notable distinction between a Roth IRA and a Traditional IRA lies in the age limit for contributions. In a Traditional IRA, individuals are restricted from making contributions after reaching the age of 70.5. This age-based limitation is a fundamental aspect of Traditional IRAs and reflects the conventional tax-deferred structure associated with these accounts.

Conversely, a Roth IRA offers more flexibility as it does not impose an age limit on contributions. Individuals can continue making contributions to a Roth IRA at any age, provided they have earned income. This absence of an age restriction is a key feature of Roth IRAs and aligns with their unique tax treatment.

The difference in contribution age limits is part of a broader set of distinctions between Roth and Traditional IRAs. In a Traditional IRA, contributions may be tax-deductible, and taxes are deferred until withdrawals are made during retirement. In contrast, Roth IRA contributions are made with after-tax dollars, but qualified withdrawals, including earnings, are tax-free.

The absence of an age limit for Roth IRA contributions allows individuals to continue saving for retirement, enjoying potential tax-free growth, even in their later years. This flexibility makes Roth IRAs an attractive option for those seeking ongoing retirement savings opportunities, irrespective of age, contributing to the overall retirement planning landscape.