Taxpayers contributing to and receiving distributions from a Roth IRA generally earn a before-tax rate of return on their contributions equal to their after-tax rate of return. True / False.

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Social Studies

Serena Orr

8 May, 06:34

Taxpayers contributing to and receiving distributions from a Roth IRA generally earn a before-tax rate of return on their contributions equal to their after-tax rate of return. True / False.

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Answers (1)

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Asher Bonilla · Answer 1

True.

Explanation:

A Roth IRA is an account for retirement savings where an individual can withdraw their retirement savings tax-free. This type of account is similar to the traditional IRA, where the biggest difference is the way they are taxed. Traditional IRA deposits are made with pre-tax dollars, and when you want to withdraw the money when you retire, your amount is deducted from the taxes and you have to pay income tax.

On the other side, Roth IRAs are financed with the after-tax dollars and an individual does not get the deduction from taxes, and once the money is withdrawn, it is tax-free.

Before-tax deduction: When you take money from your income and place it in a retirement account before you deduct your taxes, you reduce the taxable income.

After-tax deduction: When you withdraw your money after you paid your taxes and invest them in your retirement savings account, you have to pay taxes again when you want to withdraw the money from the retirement savings account.