Don't use your retirement account to pay off creditors

"Keep Your Nest Egg" by Douglas Jacobs

Link to article: http://www.bankruptcylawnetwork.com/keep-your-nest-egg/

Don’t take money out of your retirement account to ease a temporary economic crunch.

Difficult times come and go; and sometimes they seem insurmountable. When that happens, it might appear wise to tap into the 401k or the IRA and borrow or take some of the funds. Don’t do it!

I see bankruptcy clients every day who have used their 401k or their IRA to cover bills. They come to see me after they have reduced or spent all of their retirement! It’s too bad they didn’t see a bankruptcy attorney or competent financial adviser before that money was gone.

Almost all retirement accounts are considered exempt property. That means that even after filing a bankruptcy, you’ll still have it. But your debts, or most of them, will be gone.

Your retirement account is probably the only hope you have for the future. None of us will work forever, and if you deplete the account today, you may well find yourself unable to retire; or not able to afford anything more than a meager existence at that time. And don’t expect the Social Security system to bail you out. At the top rate, the monthly pay-out is barely enough to afford reasonable housing and food, much less travel money to see the grandkids or go fishing.

You should also remember that any money you withdraw from a retirement account gets taxed now. And there’s a 10% penalty for early withdrawals from an IRA. Those taxes won’t go away in the bankruptcy. Not only will you lose an exempt asset you could have kept, but you will incur a new debt too.

So, don’t deplete your retirement. Leave it for when you really need it. See a competent bankruptcy attorney in your state before you make the decision.