Explain the differences in how a 401k, a Roth IRA, and a traditional IRA are taxed.(1 point)
Responses
A 401k is taxed when the money is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn.
A 401k is taxed when the money is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn.
A 401k is taxed when the money is deposited; a Roth IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; and a traditional IRA is taxed when the money is withdrawn.
A 401k is taxed when the money is deposited; a Roth IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; and a traditional IRA is taxed when the money is withdrawn.
A 401k is taxed when the money is withdrawn; a Roth IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; and a traditional IRA is taxed when the money is deposited.
A 401k is taxed when the money is withdrawn; a Roth IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; and a traditional IRA is taxed when the money is deposited.
A 401k allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA is taxed when the money is withdrawn.
A 401k is taxed when the money is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn.
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I apologize for any confusion caused. The correct response is:
A 401k is taxed when the money is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn.
The correct response is: A 401k allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA is taxed when the money is withdrawn.
The correct answer is:
A 401k allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA is taxed when the money is withdrawn.
To understand the differences in how a 401k, Roth IRA, and traditional IRA are taxed, it's important to know how each account works.
A 401k is an employer-sponsored retirement account where contributions are made from pre-tax income. This means that the money you contribute to a 401k is deducted from your taxable income for that year. The earnings on the investments in the account grow tax-free. However, when you withdraw the money during retirement, it is subject to income tax.
A Roth IRA, on the other hand, is an individual retirement account that is funded with after-tax income. This means that contributions to a Roth IRA are not tax-deductible. However, the earnings in the account grow tax-free, and when you withdraw the money during retirement, it is not subject to income tax.
A traditional IRA is also an individual retirement account, but it offers tax advantages similar to a 401k. Contributions made to a traditional IRA may be tax-deductible, reducing your taxable income for the year. The earnings in the account grow tax-deferred, meaning you don't pay taxes on the investment gains until you withdraw the money during retirement. At that point, the withdrawals are treated as taxable income.
So, in summary, a 401k allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn; a Roth IRA is taxed when the money is deposited; and a traditional IRA allows tax deductions when the money is deposited and then the money is taxed when it is withdrawn.