If you want tax-free growth and tax-free withdrawals in retirement, which account should you choose?

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

Answer: (B)

Roth IRA is designed for tax-free growth and tax-free withdrawals in retirement. You contribute after tax, so you don’t get an upfront deduction, but the investments can grow without facing taxes, and qualified withdrawals in retirement come out tax-free. To be able to take tax-free withdrawals, you generally need to be at least 59½ and have had the account for at least five years.

Other common accounts don’t offer both tax-free growth and tax-free withdrawals. A 401(k) and a traditional IRA grow tax-deferred, meaning you don’t pay taxes as the money earns, but when you withdraw in retirement those distributions are taxed as ordinary income. A pension provides retirement income that is typically taxed when received. So only the Roth IRA matches the goal of both growth and withdrawals being tax-free in retirement.