Are tax free retirement accounts legitimate?

A tax-free retirement account or TFRA is a type of long-term investment plan designed to help minimize taxes on retirement income. A TFRA retirement account isn't a qualified plan, so it doesn't follow the same rules as a 401 (k). However, it can offer both tax benefits and risk protection for investors. The first thing the site does is confuse you about what tax-free retirement accounts really are.

If you have financial knowledge, you know what they are. They usually start with the word “Roth”. We're talking about Roth IRAs, Roth 401 (k), s, Roth 403 (b), s and Roth 457 (b), s. Once the money is in the account, it becomes tax-free and retirement withdrawals are tax-free.

A tax-free account is NOT an insurance policy. It's certainly not an insurance policy that only allows you to borrow against your cash value. If you have a cash-value life insurance policy and deliver it to get its full cash value, not only will you pay taxes on all profits, but you'll also pay ordinary income tax rates on all of your earnings. That's not a tax-free retirement account, regardless of what an insurance agent puts on their website.

Breaking down how a tax-free retirement account works can help you decide if this strategy may be right for you. A financial advisor can also help you determine if a TFRA is right for you. Try using the free SmartAsset advisor search tool today. You should think of life insurance as another asset class for your tax and retirement planning.

Basically, you can set up this account as a Roth IRA with no income or contribution limits. You won't get a tax deduction for your premiums, but the money will grow tax-free. If handled correctly, it will be tax-free. In addition, these accounts will not incur IRS penalties for withdrawals before you turn 59 and a half years old.

This can be a great advantage for people looking to retire early.