Which account allows tax-free withdrawals of qualified distributions?

• A. Traditional IRA
• B. SEP Plans
• C. Roth IRA
• D. SIMPLE Plans

Answer: (C)

Tax-free withdrawals of qualified distributions come from a Roth IRA. In a Roth, you contribute with after-tax dollars, so you don’t get a tax deduction up front, but the money grows tax-free. For distributions to be tax-free, they must be qualified: the account has been open at least five years, and you are at least 59½ or you meet another qualifying event such as disability or first-time homebuyer. Under these conditions, both the contributions and the earnings can be withdrawn free of tax. This differs from traditional IRAs and pre-tax employer plans (like SEPs or SIMPLEs), where withdrawals are taxed as ordinary income and may face penalties if taken before you reach certain ages or meet other rules.