State Finance Challenge Practice Test

Which retirement account allows tax-deferred growth where taxes are paid on withdrawals?

IRA Estate Tax Overdraft Protection Strict Liability

Correct Answer:

IRA

Explanation:

Tax-deferred growth means your earnings grow without being taxed as they accrue; taxes are paid when you withdraw the money, typically in retirement. A traditional IRA fits this pattern: you may get an upfront tax deduction for contributions, the investments grow without current taxes, and withdrawals are taxed as ordinary income in retirement. This contrasts with a Roth IRA, where you pay taxes on contributions and withdrawals are tax-free. The other options aren’t retirement accounts, so they don’t apply here.

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