You won't get a tax deduction with a Roth, but you'll never be taxed. If you still have more money to invest, split it equally between a regular savings account and a regular 401 (k), he said. Tax-free retirement savings accounts offer benefits for chronic, critical and terminal illnesses, similar to long-term care plans. Tax-free retirement accounts are a type of investment plan covered by Section 7702 of the Internal Revenue Code that is designed to provide tax-free income for retirement.
There is no tax deduction for Roth IRA contributions, but money grows tax-free and, more importantly, the money becomes tax-free income during retirement. Breaking down how a tax-free retirement account works can help you decide if this strategy may be right for you. While your contributions aren't tax-deductible, as they can be with a traditional IRA or 401 (k), distributions made after age 59 and a half are generally tax-exempt. A tax-free retirement account or TFRA is a retirement savings account that works in a similar way to a Roth IRA.
A TFRA retirement account is a lesser-known strategy for long-term financial planning, but it's something you might want to consider if you're interested in earning tax-free income. Financial advisors and wealth managers can market these plans to investors looking for an alternative way to save for retirement, beyond a 401 (k), pension, or individual retirement account (IRA). If you can save money in a Roth version of an individual retirement account or a 401 (k) plan, you could opt for a fairly simple way to earn tax-free income. Contributions to the HSA are tax-deductible, account earnings are tax-free, and withdrawals used to pay for qualifying medical expenses are also exempt from taxes and penalties.
Tax-free retirement accounts can also be useful for generating an additional stream of income for retirement. Unlike a Roth IRA, a tax-free retirement account has no retirement restrictions regulated by the IRS.