Remember me writing about how money in 401K retirement plans grows without the owner needing to pay current taxes? What is so interesting to me as a bankruptcy attorney in Indiana, is that 401K money counts as an exempt asset in a bankruptcy. In other words, the money cannot be taken. Most people don’t know this about 401K, and find this information very reassuring as they imagine how their lives will look after filing bankruptcy.
I specifically mentioned 401K, because that’s one of the better-known types of retirement plan. But the fact is, bankruptcy protection extends to many kinds of tax-deferred retirement plans, including SEP and SIMPLE plans, which small employers tend to offer, as well as to IRA and Roth IRA accounts. Interestingly, employer plans such as 401K, SEP, and SIMPLE have unlimited protection. IRA’s are protected up to $1,000,000.
I don’t need to tell you that the vast majority of my bankruptcy clients don’t have retirement accounts anywhere near that large. But what this goes to show is the great importance our government places on helping people save for their own retirement.
Any good news for my personal bankruptcy and business bankruptcy clients is good news to me. After they file bankruptcy, people can turn their attention to living their lives and preparing for retirement.