What is a defining feature of the Roth IRA compared to a Traditional IRA?

A defining feature of the Roth IRA is that it allows for tax-free growth and tax-free withdrawals of earnings in retirement, provided certain conditions are met—most notably, that the account holder is at least 59½ years old and the account has been open for at least five years. This means that all the earnings generated within the Roth IRA are not subject to income tax when withdrawn, which is a significant advantage over traditional IRAs, where withdrawals of earnings are subject to income tax upon distribution.

While contributions to a Roth IRA are made with after-tax dollars and therefore do not reduce taxable income, the core advantage lies in the tax treatment of the account's growth and withdrawals. This structure is particularly beneficial for individuals who expect to be in a higher tax bracket in retirement, as it provides an opportunity to avoid taxes on investment gains.

In contrast, traditional IRAs allow contributions to be deducted from taxable income, and while earnings grow tax-deferred, they will be taxed upon withdrawal. Thus, the Roth IRA's ability to provide tax-free earnings and withdrawals, especially after meeting the age and holding period requirements, sets it apart as a valuable retirement savings option.