Which retirement account uses after-tax contributions with tax-free qualified withdrawals?

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

Answer: (D)

The key idea is how contributions and withdrawals are taxed for retirement accounts. The account that uses after-tax contributions and allows tax-free withdrawals in retirement is the Roth IRA. With a Roth IRA, you contribute with money that’s already been taxed, so you don’t get an upfront deduction. Earnings grow tax-free, and a qualified withdrawal in retirement is tax-free as well. A distribution is qualified if you’re at least 59½ and the account has been open for at least five years.

This differs from traditional IRAs, where contributions are typically deductible up front and withdrawals are taxed as ordinary income later. SEP and SIMPLE plans are employer-sponsored and generally involve pre-tax contributions, with withdrawals taxed when you take them.