What is a primary advantage of a Roth IRA?

A primary advantage of a Roth IRA is that it offers tax-free withdrawals in retirement. This feature allows account holders to contribute after-tax dollars, meaning they pay taxes on the money before it goes into the account. As a result, once the account holder reaches retirement age and meets certain conditions, withdrawals from the Roth IRA can be taken tax-free. This is particularly beneficial because it allows individuals to potentially avoid paying higher taxes on their retirement funds, especially if their income increases in the future.

In contrast, other options present different characteristics of retirement accounts. Tax-deductible contributions pertain more to traditional IRAs, where contributions can reduce taxable income in the year they are made. Higher contribution limits are also generally associated with other retirement plans like 401(k)s rather than Roth IRAs. Lastly, while early withdrawals from a Roth IRA can incur penalties under certain conditions, they are not a feature that is advantageous to account holders. Thus, the feature of tax-free withdrawals stands out as a significant benefit of a Roth IRA.