November 3, 2009 by tfroberts

Here's another good reason not to tap your retirement plan accounts. We know that when retirement funds are tapped, it is unlikely they will be paid back and people generally stop contributing altogether. This can spell financial disaster when you retire. The Bankruptcy Reform Act (2005) protects tax exempt retirement accounts from your creditors if need to declare bankruptcy.

The protected accounts include 401(k), 403(b), Traditional IRAs, Roth IRAs, SEPs, 457(b) and SIMPLE qualified plans. The IRAs, Traditional and Roth, are protected up to $1,000,000. The other accounts do not have a dollar limit. If you believe bankruptcy may be an option, make sure you consider which assets you use to pay debts before going into the process.

Because the intent of the law is to protect your assets needed for retirement and a reasonable lifestyle, there are some debts that you cannot dismiss through bankruptcy, including:

» Educational loans
» Tax liens
» Cash advances
» Child support
» Divorce debts
» HOA, condo and coop fees
» Some luxury item purchases

Managing your debt, especially when considering bankruptcy, requires good planning to have positive result. Consider how to protect your assets so you have a reasonable chance of rebuilding. Get qualified advice from an experienced attorney, financial planner and accountant before starting the process.