Nobody likes to think about going bankrupt, but it could happen to the best of individuals. In fact, the Administrative Office of the U.S. Courts reported that for the 12-month time period ending March 31, 2010, there had been almost 1.6 million bankruptcy filings.
A study by Harvard University revealed that health issues triggered half of those individuals to seek defense against creditors. According to the Congressional Record, seniors (sixty-five and older) are now the fastest growing age group registering for bankruptcy protection. If situations push you into insolvency, you may take comfort in understanding that a few of your possessions may now be better secured. Take these suggestions to best protect your retirement funds in the event of bankruptcy.
On April 20, 2005, the President signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of this brand new legislation was to revise current laws to help make credit more cost effective for American citizens. A part of the laws expanded the language regarding the protection of retirement funds.
All cash that you have in certified retirement funds, such as 401(k)s, profit sharing plans, and 403(b)s have become exempt from liquidation. Your IRAs and Roth IRAs will have a $1 million restriction that is modified for inflation. Today you may think that this is not a particularly large amount because numerous investors get big rollovers once they retire. The government took good care of you there. The $1 million restriction is applicable only to your contributions and the associated appreciation. It does not consist of funds rolled into your IRAs from qualified programs, which have limitless protection. Observe that the above Only applies in the case of bankruptcy, not financial difficulty and we will soon provide retirement advice for that circumstance.
For instance, assume that over the last 30 years you had faithfully contributed the absolute maximum into your IRA retirement fund. Now that account is really worth $400,000. What if you still have $800,000 sitting in your former employer's 401(k) and were afraid to roll it into your IRA because your state had poor insolvency protection regulations? The new federal legislations has changed all of that. For even though the IRA will be really worth $1.2 million after the roll-over, only the original $400,000 will apply to the $1 million limit. The balance falls in to the limitless protection category. Nevertheless, this only applies to bankruptcy. Not to judgments awarded in other courts exactly where state creditor protection laws could possibly prevail. Important retirement advice: verify and know your STATE's rules that guard your retirement fund. Several states may judge your retirement fund exempt from creditors and others not. Find out.
Due to the new provisions, your IRAs will have more creditor protection (under liquidation law) and be there when you require the cash. Therefore, you can have greater peace of mind when you roll your certified plan funds into an IRA. Furthermore you'll have the flexibility that an IRA can provide, such as more investment choices, much less restrictive guidelines, and tax-savings provisions for the beneficiaries. Our retirement advice is that all investors talk with their own certified tax and financial advisors prior to doing any retirement fund decisions.