What statement is true about tax-advantaged accounts, specifically regarding Roth accounts?

• A. All contributions are tax-free.
• B. Traditional accounts never offer tax deductions.
• C. HSA withdrawals are always taxed.
• D. Roth accounts use after-tax dollars and provide tax-free withdrawals.

Answer: (D)

Roth accounts use after-tax dollars, and the key benefit is tax-free withdrawals in retirement when you meet the rules. You don’t get an upfront tax deduction for your contributions, but your money grows without taxes on the earnings, and qualified withdrawals—typically after age 59½ and with at least five years since the account opened—are tax-free. If you take money out before meeting those conditions, earnings may be taxed and penalties could apply. This makes the statement about after-tax contributions and tax-free withdrawals the most accurate description. Other options misstate the tax treatment (for example, claiming contributions are tax-free upfront or suggesting that traditional accounts never offer deductions), or mix in rules from other accounts.