Asset Protection and Your Retirement Account
Asset protection is a factor in most people’s estate planning strategy. Some people establish trusts and transfer assets to their heirs while they are still alive in order to protect their heirs’ inheritance from being vulnerable to creditor claims during probate. A simpler asset protection tool is probably already doing its job silently in the background. Your employer-provided retirement account is a major source of financial stability; in ideal circumstances, it will provide all the income you need for the duration of your retirement, so that all the money in your personal savings will eventually become part of your estate, because you will never need to spend it as long as you are alive. Employer-provided retirement plans provide robust protection from creditor claims, thanks to federal and state laws, but some scenarios still result in your retirement account balance being lower when you retire than it was at its peak. To find out more about retirement accounts and asset protection, contact a Washington, D.C. estate planning lawyer.
You Can Keep Your Retirement Savings Even If You File for Bankruptcy
Many states, including Maryland, have expanded on the Employee Retirement Income Security Act of 1974 (ERISA), a federal set that establishes rules about retirement pensions for public sector employees and for private retirement accounts provided by employers. Besides the protections granted by ERISA, Maryland law states that, if an individual files for bankruptcy protection, the court may not order the employee to withdraw money from an employer-provided retirement account, such as a 401(k) or an IRA, to settle his or her debts. In other words, if you have an employer-provided retirement account and you file for bankruptcy, you do not have to rebuild your savings from zero; while you are still in the workforce, your retirement account occupies a liminal space where it is not technically part of your property.
Your Ex-Spouse Is a Threat to Your Retirement Savings, but You Are a Bigger Threat
The bankruptcy court cannot touch your retirement account, but the divorce court can. If you get divorced after a long marriage during which the value of your employer-provided retirement account has grown, the court can issue a qualified domestic relations order (QDRO), which orders your retirement account to pay out a portion of each monthly retirement check to your ex-spouse. The court is more likely to do this if your ex does not also have his or her own employer-provided retirement account.
An even more common scenario is that working adults, regardless of marital status, take voluntary early withdrawals from their retirement accounts. Many of these instances involve middle-aged people withdrawing money from their retirement accounts to assist their young adult children.
Contact Tobin O’Connor Ewing About Getting the Maximum Financial Security From Your Retirement Account
A Washington, D.C. estate planning attorney can help you plan for a comfortable retirement, based on the projected income you can get from your employer-provided retirement account, plus whichever other assets you have. Contact Tobin, O’Connor, and Ewing in Washington, D.C. or call 202-362-5900.
Source:
dol.gov/general/topic/retirement/erisa#:~:text=The%20Employee%20Retirement%20Income%20Security,for%20individuals%20in%20these%20plans.
