What is one key difference between Roth IRAs and Traditional IRAs?

One key difference between Roth IRAs and Traditional IRAs is that contributions to Roth IRAs are made with after-tax dollars, meaning taxes are paid at the time of contribution. This structure allows for tax-free withdrawals during retirement, provided certain conditions are met, such as reaching age 59½ and having the account open for at least five years. This is particularly advantageous for individuals who expect to be in a higher tax bracket during retirement since they can withdraw funds without paying additional taxes.

In contrast, contributions to Traditional IRAs are typically made with pre-tax dollars, allowing individuals to defer taxes on that income until they withdraw funds during retirement. This structure can provide immediate tax benefits but results in tax liabilities upon withdrawal.

The other options describe benefits and features that do not accurately depict the differences between the two types of accounts. For example, Traditional IRAs do not allow tax-free withdrawals at any age; they are subject to penalties if taken early, and withdrawals are taxed as ordinary income. Furthermore, Roth IRAs do not guarantee a monthly income at retirement; they provide flexibility in how withdrawals can be taken. Lastly, while both types of IRAs are subject to required minimum distributions (RMDs), this applies differently: Traditional IRAs require RMDs