Protecting Your Retirement Fund

For an average salaried person, retirement fund is a valuable asset, which, even in a depressed economy and a planned expenditure cycle at current rates, will ensure that your creditors stay away from it. All categories of creditors like people who have filed lawsuits against you, former spouses, and jobless children can be a drain on your retirement fund. Besides getting more details about tax exemptions, which can protect your retirement fund, explore investment options, which will keep your money safe from creditors. According to the Employee Retirement Income Security Act, retirement funds  invested in 401(k) plans are safe from creditors, but not the taxmen and spouses.

Though most Southern states exempt all assets in retirement funds from tax while they are a part of a retirement account, there are different laws governing taxation on spending withdrawals from the retirement fund. States in the Midwest, Central, and Pacific areas have varying laws about withdrawals; and while protection is given to the actual owners, funds are not protected from creditors or spouses. Though one has the option of declaring bankruptcy to seek protection from taxes or save their retirement funds, there are certain limitations to funds in I.R.A and 401(k), which may leave you vulnerable against lawsuits or claims from spouse.

Suitable Ways to Protect Your Retirement Funds

A. Be aware of IRA regulations – If you are moving into a state, which has no IRA protection rules to safeguard 401(k) funds from creditors from a state with IRA benefits after putting your 401(k) plan funds into an IRA prior to retirement or after a layoff, abandon the idea of moving funds. Your personal assets in 401(k) plans are safer with a company account as then your creditors in the state you are shifting to cannot touch your retirement money.

B. Withdraw only what is necessary – There are several investment advisor, exhorting you to take control of your retirement funds and invest them in real estate or business schemes and people make withdrawals of their 401(k) plans to invest in them without realizing that they would have to pay income tax on it and creditors can lay claim on the benefits thereon. If you do not have a wealthy legacy that can help you survive during retirement, it would be prudent to take out only an amount, which is necessary and retain the remaining to keep it safe from creditors.

C. Keeping I.R.A for family – As government regulations do not automatically protect I.R.A funds after a person’s demise, one needs to make a provision to ensure that the actual beneficiaries benefit from it, depending on their location. This can be done by creating a trust to shield the assets from creditors, which will hold the IRA funds. As there are strict laws about the transfer and delay in managing 401(k) funds to the rightful owners, it will not take for a deceased family to take the benefit of their savings.

If you are interested in taking charge of retirement funds and investing them in real estate or equities, take the opinion of people who have actually done such activities and have managed to emerge successful with better returns than traditional 401(k) plans. Before making any withdrawals, ensure that your remaining amount in the fund is safe from creditors that you would meet during this advertising campaign.