Series 7 practice questioneasyRetirement Accounts — Traditional IRA Contributions
What is the primary tax advantage of contributing to a Traditional IRA?
- AContributions are made with after-tax dollars and grow tax-free
- BThere is no limit on annual contributions
- CAll withdrawals are tax-free regardless of age
- DContributions may be tax-deductible, reducing taxable income in the year of contribution✓ Correct answer
Explanation
Why D — Contributions may be tax-deductible, reducing taxable income in the year of contribution
The primary tax advantage of a Traditional IRA is that contributions may be tax-deductible, depending on the taxpayer's income level and whether they are covered by an employer-sponsored retirement plan. This reduces the contributor's taxable income in the year of the contribution. Withdrawals in retirement are then taxed as ordinary income.
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