Which account allows for contributions that are already taxed and never taxed upon withdrawal?

Which account allows for contributions that are already taxed and never taxed upon withdrawal?

• A. 401(k)
• B. Roth 401(k)
• C. SIMPLE IRA
• D. Traditional IRA

Answer: (B)

A Roth 401(k) allows for contributions that are made with after-tax dollars, meaning the contributions have already been taxed. This is a significant aspect of how this account works. Once funds are contributed to a Roth 401(k), they grow tax-free, and when the account holder withdraws the money in retirement, both the contributions and the earnings can be withdrawn without any additional tax liabilities as long as certain conditions are met (such as being at least 59½ years old and having the account for at least five years). This stands in contrast to other types of retirement accounts, such as a 401(k) or a Traditional IRA, where contributions are made pre-tax, and taxes are paid upon withdrawal. SIMPLE IRAs also typically involve pre-tax contributions, meaning they will be taxed at the withdrawal stage. Therefore, a Roth 401(k) uniquely provides the advantage of tax-free withdrawals, making it an attractive option for many investors looking for long-term tax benefits.

A Roth 401(k) allows for contributions that are made with after-tax dollars, meaning the contributions have already been taxed. This is a significant aspect of how this account works. Once funds are contributed to a Roth 401(k), they grow tax-free, and when the account holder withdraws the money in retirement, both the contributions and the earnings can be withdrawn without any additional tax liabilities as long as certain conditions are met (such as being at least 59½ years old and having the account for at least five years).

This stands in contrast to other types of retirement accounts, such as a 401(k) or a Traditional IRA, where contributions are made pre-tax, and taxes are paid upon withdrawal. SIMPLE IRAs also typically involve pre-tax contributions, meaning they will be taxed at the withdrawal stage. Therefore, a Roth 401(k) uniquely provides the advantage of tax-free withdrawals, making it an attractive option for many investors looking for long-term tax benefits.