Question

Which statement below identifies a benefit of investing in a roth ira?

a) required minimum distributions can be deferred until termination of employment.
b) any taxpayer with earned income can contribute to a roth ira.
c) distributions before age 59½ are not subject to ordinary income taxation if the roth account has been open for more than five years.
d) growth on the investment earnings is tax-free if taken as part of a qualified distribution.

Answer 1

A Roth IRA's benefit is that the growth on the investment earnings is tax-free for qualified distributions, which are generally withdrawals made after age 59½ and the account being open for five years. This type of IRA is beneficial for taxpayers who expect to be in the same or higher tax bracket in retirement.

Step-by-step explanation:

The correct statement that identifies a benefit of investing in a Roth IRA is: d) growth on the investment earnings is tax-free if taken as part of a qualified distribution.

A Roth IRA offers tax-free growth and tax-free withdrawals in retirement, provided certain conditions are met. Unlike a traditional IRA, where contributions are tax-deductible and withdrawals are taxed as ordinary income, a Roth IRA consists of after-tax contributions. This means that the money invested grows tax-free, and qualified distributions - typically those made after the account has been open for at least five years and after the account holder reaches 59½ years of age - are not taxed. This is extremely beneficial for investors who expect to be in the same or a higher tax bracket during retirement, as they can withdraw their savings without worrying about tax implications at that time. Additionally, there are no required minimum distributions (RMDs) with a Roth IRA, giving account holders more control over their funds and allowing them to potentially leave more to heirs.