Which retirement plan qualifies for a federal income tax deduction?

• A. Traditional IRA
• B. Roth IRA
• C. 403(b)
• D. 529 plan

Answer: (A)

The key idea is whether contributions to a retirement plan can be deducted on your federal tax return in the year you contribute. A traditional IRA lets you deduct your contributions in that year, as long as you meet income limits and whether you or your spouse have other retirement plan coverage. When the deduction is allowed, it lowers your current taxable income and the account grows tax-deferred until withdrawals in retirement, which are taxed as ordinary income.

Roth IRA contributions, on the other hand, are made with after-tax dollars and are not deductible, though qualified withdrawals later can be tax-free. A 403(b) plan involves pre-tax salary deferrals that reduce current taxable income too, but the question’s focus on a direct deduction on the tax return points to the traditional IRA as the plan offering that immediate deduction. A 529 plan does not provide a federal income tax deduction for contributions.

So, the traditional IRA is the option that best fits the idea of receiving a federal income tax deduction for contributions.