We know for many contemplating a bankruptcy filing, the implications it may have on their retirement accounts are a major concern. While we’ve addressed the basics of retirement and bankruptcy on our blog
, today we wanted to take a deeper dive into protecting your 401(k) in the bankruptcy process.
What is a 401(k)?
According to Investopedia
, “A 401(k) plan is a tax-advantaged, defined-contribution retirement account offered by many employers to their employees. It is named after a section of the U.S. Internal Revenue Code. Workers can make contributions to their 401(k) accounts through automatic payroll withholding, and their employers can match some or all of those contributions. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money, typically after retirement. In a Roth 401(k) plan, withdrawals can be tax-free.” When you file for bankruptcy, you may wonder if the filing will impact your 401(k). However, under federal bankruptcy law, your retirement savings are protected up to nearly $1 million dollars. Your 401(k) accounts are considered the most common type of retirement accounts and are covered under the Internal Revenue Code. This means that your savings should be completely untouched during bankruptcy.
ERISA-Qualified Retirement Accounts Aren’t Protected
401(k) and other retirement accounts are typically not part of your bankruptcy estate. Most employer-sponsored retirement plans are ERISA-qualified accounts. So, if you are considering filing for bankruptcy, it’s a good idea to check with your employer to make sure your 401(k) is ERISA-qualified. ERISA-qualified retirement plans have transfer restrictions that protect the funds in your account from creditors, so much so that The Supreme Court has ruled that this transfer restriction is enforceable in bankruptcy. As a result, an ERISA-qualified 401(k) account can’t be used to pay your creditors. However, issues may arise, and if you withdraw money from your retirement account and purchase other assets or place the money in a regular bank account before filing your case, it won’t receive the special protections afforded to retirement funds. Retirement accounts can become complicated in the bankruptcy process, especially if you have withdrawn money to pay for other things. But The Jones Law Firm can help.
Bankruptcy and Retirement with The Jones Law Firm
Let The Jones Law Firm help you in your bankruptcy process; we can take a look at your debts and assets and help determine if Chapter 7 or Chapter 13 bankruptcy is right for you. If you live in Columbus, Ohio, allow Attorney Michael Ryan Jones to help you kick-start your financial future. Contact us today