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

A Roth IRA is designed to provide tax-free withdrawals in retirement, making it unique among other retirement account types. Contributions to a Roth IRA are made with after-tax dollars, meaning the funds have already been taxed before being deposited into the account. This characteristic sets it apart, as any qualified distributions taken in retirement—provided the account has been held for at least five years and the account holder is at least 59½ years old—are completely tax-free.

In contrast, accounts like Traditional IRAs and 401(k)s offer tax-deductible contributions or pretax contributions, meaning taxes are deferred until withdrawals are made in retirement. This can result in taxable income at that time, contrary to the tax-free advantage of the Roth IRA. The SEP IRA also shares similarities with the Traditional IRA regarding contributions and tax treatment, as contributions are made pre-tax, deferring taxes until withdrawal. Thus, among the options provided, a Roth IRA stands out for its tax-free growth and withdrawal benefits in retirement.