What is a fundamental feature of a Roth IRA?

A fundamental feature of a Roth IRA is that withdrawals can be tax-free under certain conditions. This characteristic is one of the primary benefits that differentiate the Roth IRA from other retirement accounts. With a Roth IRA, individuals make contributions using after-tax dollars, meaning taxes have already been paid on the money that goes into the account. As a result, qualified withdrawals—those taken after the account holder reaches the age of 59½ and has held the account for at least five years—are exempt from federal income tax. This can lead to substantial tax savings, especially for those who expect to be in a higher tax bracket during retirement.

In contrast, contributions to a traditional IRA are tax-deductible, but this feature is not applicable to a Roth IRA, where contributions do not provide an immediate tax benefit. Roth IRAs also have contribution limits based on income and do not permit unlimited contributions, which further distinguishes them from other types of accounts. Unlike some retirement accounts that enforce mandatory minimum distributions at a certain age, Roth IRAs do not require withdrawals during the account holder's lifetime, providing more flexibility for retirement planning.