Which statement is true about a Traditional IRA?

The statement regarding earnings within a Traditional IRA growing tax-deferred is accurate because one of the primary advantages of this type of retirement account is that the investment gains, including interest, dividends, and capital gains, are not subject to taxation as long as they remain in the account. This allows the funds to grow without the immediate tax burden, enhancing the potential for long-term compounding growth.

When funds are ultimately withdrawn, typically during retirement, they are taxed as ordinary income at the individual's applicable tax rate at that time. This tax-deferral feature is what makes Traditional IRAs an effective vehicle for retirement savings, incentivizing individuals to save for retirement by allowing their investments to increase in value without the erosion of taxes in the interim.

In contrast, contributions to a Traditional IRA may not always be fully tax-deductible for every taxpayer, as there are income limits and conditions regarding participation in employer-sponsored retirement plans that can affect eligibility. Additionally, distributions are not tax-free; they are subject to income tax upon withdrawal. Traditional IRAs are accessible to a wide range of earners, not exclusively to high-income individuals, making the claim of exclusivity with respect to income levels incorrect.