Which investment account type involves contributions that are taxed as income but not taxed again upon withdrawal?

The investment account type that involves contributions being taxed as income but not taxed again upon withdrawal is the Roth IRA. When you contribute to a Roth IRA, you use post-tax dollars, meaning you pay income tax on your contributions upfront. This unique tax treatment allows the money within the Roth IRA to grow tax-free, and when you eventually withdraw funds during retirement—as long as certain conditions are met—those withdrawals are not subject to additional taxes. This feature makes Roth IRAs particularly appealing for individuals who expect to be in a higher tax bracket in retirement, as it allows for tax-free income later in life.

In contrast, other types of accounts like Traditional IRAs and 401(k)s work differently. Contributions to these accounts are typically made with pre-tax dollars, which means they reduce your taxable income in the year you make the contributions. However, when you withdraw funds from these accounts during retirement, those withdrawals are considered taxable income. Understanding this fundamental difference is key when deciding on the best retirement strategy that aligns with your financial goals.