Which savings plan is characterized by earnings not being taxed?

• A. Traditional IRA
• B. 401(k)
• C. Roth IRA
• D. Health Savings Account

Answer: (C)

Roth IRA stands out because you fund it with after-tax dollars, so you don’t get an upfront tax break. The key benefit is that the money—including the earnings—grows tax-free, and qualified withdrawals in retirement are tax-free as well. That means the earnings aren’t taxed when you take them out, provided you meet the rules for qualified distributions (such as being at least 59½ and having had the account for at least five years).

In contrast, traditional IRAs and 401(k)s give you a tax break now, but you pay taxes on withdrawals later, including the earnings. A Health Savings Account offers tax-free growth and tax-free withdrawals for qualified medical expenses, but its primary focus is to assist with medical costs, not retirement earnings in general.

So the plan where earnings are not taxed on withdrawal in retirement is the Roth IRA.