Retirement accounts offer safety in today?s storms[SIZE=-1]One more reason to keep funding your retirement accounts in these rocky times: They may be the safest place to protect your money from creditors, just in case....
Both IRAs and ?qualified? pension plans, including 401(k)s, enjoy special protections under federal law. IRAs are covered by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, It gave IRAs more protection from creditors, though not as much as pension plans have had for decades, thanks to the Employee Retirement Income Security Act of 1974, commonly known as ERISA.
In general, the money in your pension plan is shielded from creditors, with some exceptions, such as alimony and child support and obligations to the IRS.
The 2005 act, meanwhile, covers IRAs only in the case of personal bankruptcy (although your state may extend protection to other circumstances). The federal exemption is currently $1,095,000 for an IRA you?ve contributed to, but there?s no limit on IRAs created through a rollover, such as from a 401(k) plan. Just in case you might one day have a lot of money in your IRAs, it?s a good idea to keep the two types separate.
As you might imagine, the rules are more complicated than I can cover in a few paragraphs (here?s a bit more from the Vanguard and TIAA-CREF Web sites). So if you ever find yourself facing bankruptcy or facing down creditors, you?ll want to get the help of a knowledgeable lawyer, accountant, or financial planner.
?Greg Daugherty
Greg writes the ?Retirement Guy? column each month in the Consumer Reports Money Adviser newsletter.
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