Which type of IRA allows for tax-free withdrawals in retirement?

A Roth IRA allows for tax-free withdrawals in retirement because contributions are made with after-tax dollars. This means that you've already paid taxes on the money you contribute, allowing the earnings to grow tax-free. When you withdraw funds during retirement, as long as certain conditions are met—such as being at least 59½ years old and having the account open for at least five years—the withdrawals do not incur any additional tax.

In contrast, a Traditional IRA offers tax-deferred growth, meaning you do not pay taxes on the contributions up front, but you will owe income taxes when you withdraw the funds in retirement. Therefore, while both types of IRAs offer unique tax advantages, only the Roth IRA provides the distinct benefit of tax-free withdrawals under the right circumstances.