Asked by Kaitlan Phillips on May 18, 2024
Verified
Contributions to a traditional retirement plan are ________, and contributions to a Roth retirement plan are ________.
A) not tax deductible; not tax deductible
B) tax deductible; tax deductible
C) tax deductible; not tax deductible
D) not tax deductible; tax deductible
Tax Deductible
Expenses that can be subtracted from taxable income, reducing the total amount of tax owed.
Roth Retirement Plan
A retirement plan allowing individuals to contribute after-tax dollars, with tax-free withdrawals in retirement.
- Acquire knowledge on the divergent tax implications for traditional versus Roth retirement accounts, focusing on the rules governing withdrawals.
Verified Answer
VN
Vinny NicastroMay 20, 2024
Final Answer :
C
Explanation :
Contributions to a traditional retirement plan are tax deductible, meaning that they lower your taxable income for the year. However, when you withdraw money from the account in retirement, you will pay taxes on the distributions. Contributions to a Roth retirement plan are not tax deductible, but withdrawals in retirement are tax-free. Depending on your current and expected future tax bracket, a traditional or Roth plan may be the best choice for you.
Learning Objectives
- Acquire knowledge on the divergent tax implications for traditional versus Roth retirement accounts, focusing on the rules governing withdrawals.