Which of the following best describes contributions to a Roth IRA?

Contributions to a Roth IRA are made after-tax, which means that individuals contribute money that has already been taxed as part of their income. This distinguishes Roth IRAs from traditional IRAs, where contributions may be tax-deductible or made pre-tax, potentially reducing taxable income in the year the contribution occurs. The benefit of contributing after-tax is that qualified distributions from a Roth IRA, including earnings, are tax-free in retirement, assuming certain conditions are met.

Choosing after-tax contributions allows account holders to access their investment growth without facing tax penalties during retirement, thus providing a strategic advantage for many savers who anticipate being in a higher tax bracket later in life. This feature makes Roth IRAs a favorable option for individuals looking to maximize tax efficiency in their retirement savings.