Tennessee Insurance Practice Exam

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Post-tax dollar contributions are typically found in?

  1. Traditional IRA investments

  2. 401(k) plans

  3. Roth IRA investments

  4. Simple IRA investments

The correct answer is: Roth IRA investments

Post-tax dollar contributions are a characteristic feature of Roth IRA investments. When individuals contribute to a Roth IRA, they do so using money that has already been taxed, meaning the contributions do not provide any tax deduction in the year they are made. This results in tax-free growth of the funds within the account, and any qualifying withdrawals in retirement are also tax-free. In contrast, other types of retirement accounts, such as a Traditional IRA or 401(k) plans, typically involve pre-tax contributions, which lower taxable income in the year of the contribution but require taxes to be paid upon withdrawal during retirement. Simple IRAs also follow this pre-tax model. Therefore, the unique structure of the Roth IRA makes it the correct choice for investment with post-tax contributions.

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