View INSTANT Quotes

TFRA – Tax-Free Retirement Account

IRA. Retirement plans
Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 4 minute read

Retirement accounts come in many different shapes and sizes, each with its unique benefits. One type of account that has gained popularity recently is the tax-free retirement account or TFRA.

TFRAs are cash-value life insurance plans designed to help eliminate taxes on your retirement income and are a great strategy for long-term financial planning. In this post, we’ll take you through everything you need to know about TFRAs, from how they differ from traditional 401(k)s and Roth IRAs to any current tax advantages or disadvantages.

These types of retirement accounts are non-qualified retirement plans or employer-sponsored retirement plans. Instead, they are individually owned long-term strategies. Cash value accumulates in these types of accounts and can be accessed as income without paying taxes on it by taking loans from the insurance company.

How does a TFRA Account Work?

Your tax-free retirement account (Section 7702 plan) will be funded using a properly structured indexed universal life insurance policy.

There are many benefits to funding your TFRA with after-tax dollars, just as you would with a Roth IRA. The cash value in the policy grows tax-deferred, and policy owners can take out tax-free loans using their cash account as collateral during their lifetime. This can be an extremely beneficial way to accumulate wealth while not having to worry about paying taxes on the growth.

TFRAs are not subject to the same governmental constraints as qualified plans like 401(k)s or IRAs. For example, you can use the money from a TFRA account without paying a 10% penalty before age 59 ½, and there is no required minimum distribution at age 72. Your income from your account is tax-free.

Additionally, your tax-free retirement account can be used alongside employer-sponsored retirement plans as long as the funds are not commingled. Moreover, if you were to change employers, you would not be allowed to roll any 401(k) funds into your permanent insurance plan. But there’s no problem with rolling those funds into your new employer’s 401(k) or an IRA.

What are the Pros and Cons of TFRA Accounts?


A tax-free retirement account funded with cash value life insurance can offer many benefits, including saving money over time without paying taxes on the growth. This can be a great way to minimize your taxes during retirement.

These accounts often have the triple tax advantage of tax-free growth, tax-free income during retirement, and tax-free transfer of wealth upon death.

Some other advantages of these accounts include no stock market risk and the fact that you cannot lose the money invested, as opposed to a Roth IRA or 401k.


When you purchase one of these plans, you also get a death benefit. However, you must medically qualify with the life insurance company before you can buy the plan. This may be difficult to do, depending on your health history.

Furthermore, people in a higher tax bracket do not receive a tax deduction on their annual contribution limit because the premiums are paid with after-tax money.

Use Optional Insurance Riders to Customize Your TFRA Account

While most applicants prefer the lowest death benefit possible in their TFRA plan, there are riders you may want to consider to broaden your coverage and add additional living benefits:

  • Accelerated Death Benefit – Although many permanent life insurance policies automatically contain this benefit in the policy, it is well worth an additional premium if you need to add it as a rider. A terminal diagnosis can be devastating news, both emotionally and financially. Accelerated death benefit riders can help ease the financial burden by providing a payout in advance of your death. To be eligible for this benefit, you will generally need a doctor’s diagnosis confirming that you have 6 to 12 months left to live. While no amount of money can make up for the loss of a loved one, an acceleration death benefit rider can provide some financial relief during a difficult time. The amount paid out in advance is generally deducted from the death benefit that is paid to your beneficiary(s).
  • Long-Term Care Rider – With a long-term care rider on your whole life insurance policy, you can get an advance on your death benefit to help pay for long-term care expenses. This hybrid long-term care insurance coverage is much less expensive than a stand-alone policy, especially when you purchase it as a young adult.
  • Guaranteed Insurability Option – life insurance is one of the most important investments you can make for your family’s future. A Guaranteed Insurability Option (GIO) ensures that you will always be able to increase your coverage on certain birthdays without having to go through medical underwriting. This provides peace of mind, knowing that your family will always be protected. Depending on the company, you may be able to make this choice up to 9 times, giving you complete control over your coverage.
  • Critical Illness and Chronic Illness Riders – Critical Illness and Chronic Illness riders provide a lump sum payment in the event that the policyholder is diagnosed with a critical or chronic illness. This benefit is an advance against the policy’s death benefit, meaning that it will be deducted from the death benefit when the policyholder passes away. Some of the illnesses covered by this rider include cancer, stroke, heart attack, kidney failure, and ALS.

Who Should Consider a TFRA Account?

The short answer is everyone. Even if you are already contributing to a qualified retirement plan, you will have considerable tax liability when you begin taking distributions during retirement.

By combining your traditional retirement plans with a TFRA, you can accumulate significant wealth that can be accessed on a tax-free basis. You need life insurance, and you need retirement income, right?  Give us a call to discuss adding a tax-free retirement account to your retirement plan.

author avatar
Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of