A tax-free retirement account or Section 7702 plan is funded through a permanent cash value life insurance policy. A TFRA is funded with after-tax dollars, similar to the way you’d fund a Roth IRA. Cash value in the policy grows tax-deferred and policy owners can take out tax-free loans from that cash value during their lifetime. The amount of cash value that accrues inside the policy can depend on the underlying investment strategy.

Since TFRAs are not qualified plans, they’re not subject to the same tax rules as those plans. Instead, this is a retirement account where investments are tax-exempt. For example, there are no RMD’s and no 10% early withdrawal penalty to worry about if you need to take funds out of the policy prior to age 59 ½ as there would be with a 401(k) or IRA. Income generated by the policy is also tax-free.