L&HNationaleasy
Which statement correctly distinguishes a Traditional IRA under IRC §408 from a Roth IRA under §408A?
ATraditional IRA distributions are always entirely tax-free in retirement; Roth IRA distributions are always taxed as ordinary income when withdrawn
BOnly Roth IRAs are subject to an annual contribution limit; Traditional IRAs may receive unlimited annual contributions with no statutory cap
Traditional IRA contributions may be tax-deductible; Roth IRA contributions are never deductible but qualified distributions are received tax-free
DRoth IRAs require the owner to begin minimum distributions at age 73; Traditional IRAs are never subject to any required minimum distribution
Why this is the answer
§408 Traditional IRAs allow a §219 above-the-line deduction (subject to active-participant phase-outs at higher AGI). Earnings grow tax-deferred, and all distributions of deductible contributions and earnings are taxed as ordinary income. §408A Roth IRAs, added by TRA-97, allow no §219 deduction, but qualified distributions (after the 5-year holding period and age 59½, death, disability, or first-home purchase up to $10,000) are entirely tax-free. Roth contributions phase out at higher AGI but conversions from Traditional IRAs have no income cap since 2010.
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