Traditional vs Roth IRA

Which of the following statements accurately describes a key difference between a Traditional IRA and a Roth IRA?

A. Contributions to both Traditional and Roth IRAs are always tax-deductible, regardless of income level.

B. Required minimum distributions (RMDs) must begin at age 73 for both Traditional and Roth IRAs.

C. Qualified withdrawals from a Roth IRA are tax-free, while withdrawals from a Traditional IRA are generally taxable as ordinary income.

D. Traditional IRAs have income limits for contributions, while Roth IRAs do not.

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Answer: C

A is incorrect. Traditional IRA contributions may be deductible, depending on income and participation in a workplace plan. Roth IRA contributions are never deductible.

B is incorrect. Roth IRAs do not have RMDs during the original owner's lifetime; Traditional IRAs do (starting at age 73 as of 2023).

C is correct because Qualified distributions from a Roth IRA (after age 59½ and 5-year holding period) are tax-free. Traditional IRA distributions are taxable as ordinary income.

D is incorrect because Roth IRAs have income limits for contributions; Traditional IRAs do not have income limits for contributions, but deductibility may be phased out.

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