Which type of retirement account allows tax-free withdrawals if certain conditions are met?

A Roth IRA is designed to allow tax-free withdrawals, making it a popular choice for individuals looking to save for retirement. Contributions to a Roth IRA are made with after-tax dollars, meaning taxes are paid upfront. This structure leads to tax-free growth and makes it possible to withdraw contributions and earnings tax-free during retirement, provided certain conditions are met, such as being at least 59½ years old and having the account open for at least five years.

In contrast, a Traditional IRA allows for tax-deductible contributions with taxes due upon withdrawal. A 401(k) similarly defers taxes until withdrawals are made, which usually occur during retirement, and a SEP IRA functions similarly to a Traditional IRA but is specifically designed for self-employed individuals and small business owners. None of these accounts offer tax-free withdrawals like a Roth IRA does, which is why the Roth IRA is the correct answer.