What is a Roth IRA?

A Roth IRA, or Roth Individual Retirement Account, is a specific type of retirement savings account that offers tax advantages. The defining feature of a Roth IRA is that contributions are made with after-tax dollars, meaning the money has already been taxed before it goes into the account. Because of this, qualified distributions from a Roth IRA, which include both contributions and earnings taken out after the account holder reaches age 59½ and has held the account for at least five years, can be withdrawn tax-free.

This characteristic makes the Roth IRA exceptionally appealing for many individuals, as it allows for tax-free growth of investments over time and tax-free withdrawals during retirement, provided the requirements are met. This stands in contrast to traditional IRAs, where contributions may be tax-deductible, but withdrawals are taxed as ordinary income.

The other options describe different types of accounts or plans that do not align with the specific advantages of a Roth IRA. For example, an account with deductible contributions refers to traditional IRAs or employer-sponsored retirement plans where contributions may reduce taxable income in the year they are made. A savings account subject to income tax does not reflect the specialized tax benefits of a Roth IRA, and a pension plan managed by employers is unrelated, as it is structured entirely differently