What is the difference between a traditional IRA and a Roth IRA?

The distinction between a traditional IRA and a Roth IRA primarily lies in how contributions are taxed, which is accurately captured by the choice stating that traditional IRA contributions are tax-deductible, while Roth IRA contributions are made with after-tax dollars.

With a traditional IRA, contributions may be deductible from your taxable income, meaning you are not taxed on that income during the year you contribute. Instead, taxes are paid upon withdrawal during retirement, at which point individuals may be in a lower tax bracket. This feature makes traditional IRAs attractive for those looking to lower their immediate tax burden.

On the other hand, a Roth IRA requires contributions to be made with after-tax dollars, meaning you pay taxes on your income before you contribute. The primary benefit of a Roth IRA is that qualified withdrawals, including both contributions and earnings, are tax-free in retirement, provided certain conditions are met.

This fundamental difference in the taxation process regarding contributions and withdrawals is what makes the choice highlighting the tax-deductibility of traditional IRA contributions versus the after-tax nature of Roth IRA contributions accurate. The other options mentioned do not correctly convey the essential differences between traditional and Roth IRAs, particularly in their tax structures.