Many people fear losing their retirement savings when filing for bankruptcy. The good news is that federal law protects most retirement accounts. This protection means you can get a fresh financial start without putting your future at risk.
What counts as a protected retirement account?
Federal bankruptcy law shields most tax-exempt retirement funds. Here are the main retirement accounts that get protection:
- Traditional and Roth IRAs (up to $1,512,350)
- 401(k) plans
- 403(b) plans
- Defined benefit pension plans
- Profit-sharing plans
- Money purchase plans
- SEP IRAs
- SIMPLE IRAs
These protections help you keep your retirement funds safe during bankruptcy.
Rules you must follow to keep your retirement safe
Several key rules affect how your retirement accounts stay protected:
- Your money must be in the retirement account before you file bankruptcy.
- Don’t mix retirement funds with other money.
- The court will check any significant deposits made right before filing.
- Once you take money out, it might lose its protection.
You must tell the court about all your retirement accounts during bankruptcy. Taking money out of these accounts to pay bills before filing might be costly. These funds could have stayed safe through the whole process.
The rules about retirement accounts and bankruptcy can get tricky. Some actions that seem helpful cause problems later. A bankruptcy attorney can review your retirement accounts and help you make smart choices about protecting your future. They’ll ensure you follow all the rules while keeping as much of your retirement savings as possible.