Having debt has become the new normal for adults in the United States. Between student loans, the fall of the housing market, and economic problems, a larger number of people find themselves dealing with debt when they retire. Aggressive creditors will use any method possible to collect an outstanding debt even going so far as to tell you outright lies in the hope of frightening you into promising to pay them with money you do not actually have. When a debtor is older, a creditor will even threaten to take retirement savings. Knowing whether or not creditors can take your retirement savings can make dealing with unscrupulous creditors less stressful.
401(k) Plan Assets
Retirement savings from an employer-sponsored plan are safe from creditors. Most adults who have saved for retirement while they worked utilized a 401(k) plan that cannot be touched by creditors. Even if you need to file bankruptcy, your 401(k) assets cannot be taken. Creditors may attempt to tell you otherwise in an effort to pressure you into liquidating your retirement account or withdrawing enough money to from your 401(k) to pay a debt. Once you have withdrawn money from your 401(k) and placed it into your personal bank account your creditor may be able to obtain a judgment to attach that account, but as long as the funds are left in your 401(k) no private creditor can touch them.
Individual Retirement Accounts
People who are self-employed or who work for a company that does not have a sponsored retirement plan may choose to establish Individual Retirement Accounts (IRAs). These retirement accounts have lower annual contributions maximums and the owner cannot borrow funds from their contributions. Unlike a 401(k) the funds in an IRA are not completely protected from creditors. IRA assets that are not needed for your living expenses can be taken by creditors and any amount over $1.25 million is not protected during a bankruptcy.
Exception to the Rule
Like all situations involving credit and debt, there are exceptions to the rules when it comes to retirement. Though private creditors cannot seize funds in a 401(k), and there are limits on how much of an IRA they can take, other types of creditors can take your retirement. The federal government can use the funds you have saved for retirement to pay certain debts like past due taxes. During a divorce, you may be forced to give half of your retirement savings to your former spouse.
Seek Legal Advice
Eventually, the funds you have saved for retirement may become part of your estate or be used to create a trust for your heirs. The best way to secure your legacy and protect it from your creditors and potential creditors of your heirs are to seek legal advice when creating an estate plan or trust. MMZ Law are prepared to help you determine how best to protect your retirement savings from aggressive creditors while assisting you in making plans regarding your estate. Contact our conveniently located Claremont, California office today to schedule a consultation.
BROUGHT TO YOU BY:
MMZ LAW, A PROFESSIONAL CORPORATION
341 W. 1st St. Suite 100
Claremont, CA 91711
MARIVEL M. ZIALCITA is the founder of MMZ LAW, A Professional Corporation, where she practices in the areas of Elder Law – Medi-Cal Planning Asset Protection, Trust & Estate, Special Needs, Conservatorship, Trust Administration, & Probate. Ms. Zialcita is a frequent speaker on trust and estate matters and holds memberships in the State Bar of California, Trust and Estate Section, The San Bernardino County Bar Association, Wealth Counsel and Elder Counsel. She currently assists in the pro bono legal services program at the James L. Brulte Senior Center in Rancho Cucamonga, California. She is based in Claremont but assists clients throughout Southern California.
This information is educational information only and not legal advice.