Most people work hard to plan for retirement by setting aside money in specified retirement funds. Whether you have savings in an IRA, 401(k), 403(b) or 457 Plan, the purpose remains the same: to provide accessible resources for a time when you are ready to stop working due to your age or disability. To encourage people to save money for retirement, federal and state laws provide particular protections for these funds, even if you go too far into debt and need to file for bankruptcy.
With few exceptions, you should avoid dipping into your retirement accounts to pay off debt and instead consider filing for bankruptcy. An early withdrawal from your retirement account could trigger costly tax consequences. On the contrary, if you file bankruptcy, you can take control of your debt and keep your retirement. Bear in mind that the Bankruptcy Rules treat each kind of retirement fund differently — therefore, it is important to consult a bankruptcy attorney who can accurately assess your finances.
Employer-sponsored retirement plans
401(k) and 403(b) plans are employer-sponsored retirement plans that provide unlimited protection from most creditors — former spouses and the IRS excluded — during a bankruptcy proceeding. Cashing in these retirement plans is very costly, as they are taxed at a very high rate.
Individual retirement accounts
Although IRA and Roth IRA accounts are not protected under the Employee Retirement Income Security Act (ERISA), the bankruptcy laws provide protection up to a limited amount. The current amount, as of April 2013, is set at $1,245,475 per person. If your accounts exceed the allowable limit, you may be required to use the excess to pay your creditors. Retirement benefits you receive in the form of income are not exempt.
Depending on the amount and type of debt you owe and the kind of assets you possess, the Law Office of David A. Fernandez, P.C. can help find solutions to your debt problems. Our attorneys are compassionate and dedicated to helping you reach your debt relief goal. Contact our Houston office for a consultation at 713.893.3244.
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