Final answer:
A distribution from a retirement plan or IRA qualifies for a tax-free rollover if reinvested within 60 days into an IRA. The rollover can be used with traditional IRAs, which are tax-deferred, and Roth IRAs, which offer tax-free growth. Defined contribution plans like 401(k)s also offer tax benefits and portability.
Step-by-step explanation:
A distribution from an employer-sponsored retirement plan or an IRA is eligible for a tax-free rollover if it is reinvested in an IRA within 60 days. Such rollovers can involve funds from a traditional IRA, which provides a way for individuals to direct pretax income towards investments that grow tax-deferred. It's important to note the difference between a traditional IRA, which defers taxes until withdrawal, and a Roth IRA, which is funded with after-tax dollars but offers tax-free growth and withdrawal because the contributions have already been taxed.
Defined contribution plans like 401(k)s and 403(b)s have largely replaced traditional pension plans. These tax-deferred plans are funded by both the employer and the employee and are portable across jobs. Contributions to these plans can grow over time and are often invested in a range of vehicles, which can help retirees cope with inflation as opposed to the fixed payments of traditional pensions.