Facing bankruptcy can be one of the most challenging financial difficulties, especially when approaching retirement age. Thankfully, there are many legal protections to keep your hard-earned assets safe. Learn how to get the financial relief you need while protecting your assets from creditors.
Bankruptcy and Retirement Savings: Exemptions and Protections
Certain exemptions play a crucial role in protecting your retirement savings when you declare bankruptcy. Most standard retirement assets like 401(k)s, 403(b)s, profit-sharing and money purchase plans, and certain IRAs can’t be seized by creditors under federal law. But for Traditional IRAs or Roth IRA accounts, the government will only protect your funds up to a certain amount. This maximum limit is $1,512,350 as of 2023.
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Withdrawing Retirement Funds to Avoid Bankruptcy: Consideration
While using your retirement funds to pay off your debts could help you avoid bankruptcy, consider the potential consequences before moving forward. Many retirement plans have taxes and penalties for withdrawing early, which can reduce the amount you have to pay off debt. Plus, you’re using funds that are meant for your retirement years. If you use your savings now, it may be necessary to postpone retirement or sell more assets to meet your retirement goals.
The Impact of Bankruptcy on Pension Plans
Like retirement savings, federal law will protect most pensions, including defined benefit plans and certain retirement accounts. These laws make it easier to declare bankruptcy without worrying about your pension. However, exceptions can depend on the case, so consult an experienced lawyer to understand your options better.
Our Legal Experts Are Here to Help
Managing bankruptcy while trying to meet your retirement goals can be challenging. If you are considering bankruptcy and worried about your retirement accounts or pension plan, our experienced bankruptcy lawyers will guide you through the process. Please contact us to schedule a free consultation today.
