Select the correct answer. Which statement describes the effect of taxes on a traditional IRA retirement account?
Ο Α.
A traditional IRA Is tax exempt because the income earned is never taxed.
OB. A traditional IRA is tax deferred because the income earned isn't taxed until the money is withdrawn.
OC. A traditional IRA is tax exempt because the income earned Isn't taxed until the money is withdrawn.
OD
A traditional IRA is a taxable account because the income earned Is taxed when it is contributed.

C.

A traditional 401(k) is tax deferred because the income earned isn't taxed until the money is withdrawn.

Explanation:

There are two types of 401 k plans: traditional 401k and Roth 401k plans. The difference is the way there are taxed.

The traditional 401k plan is an employer-sponsored retirement scheme.  The employer withholds the employee contributions and remits the funds to the employee's 401k savings account. The amount deducted as the employee contribution is not subject to taxation at that point. Contributions to 401k plans reduce the employee's taxable income.

The amounts saved in a 401k plan are invested and generate income. Employees are not expected to pay taxes on the income generated every financial period. All taxes are deferred until the time of withdrawal.