Boca Raton Bankruptcy Lawyer

IRAs and Bankruptcy

Many older people are concerned that if they file for bankruptcy their retirement savings will be lost to the proceedings. Fortunately, the Supreme Court ruled in April of 2005 in Rousey v. Jacoway that IRAs are protected from being considered part of the bankruptcy estate. Offering more protection, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took their action one step further.

The bankruptcy reform act of 2005 increases the protection for IRAs, Roth IRAs, and the majority of company retirement accounts. These accounts are only protected in bankruptcy cases, not in other judgments the way the Employee Retirement Income Security Act (1974) protects funds.

In general, retirement funds in plans that are exempt from the federal income tax under sections of the United States Code include sections 401, 408, 408 A, 414, 457, and 501(a) are also exempt from the bankruptcy estate. These exemptions include 401(k)s, 403(b)s, IRAs, Roth IRAs, government plans, and tax-exempt organization plans.

Unfortunately, there is an inflation-adjusted cap on IRAs and Roth IRAs of $1 million. This means that if an individual has an IRA of more than $1 million, the difference between the total and the cap is not protected. Fortunately, virtually all IRAs are still fully protected. It is unlikely that anyone has accumulated more than $1 million by making the annual maximum IRA contributions since the plan was created.

In addition, if a person happens to have more than $1 million in his or her IRA, it is still protected. This is because the majority of funds in larger IRAs originally came from company plan rollovers but the $1 million cap doesn’t apply to company rollovers.

If you would like more information on the affects of filing for bankruptcy on your retirement funds, contact the Boca Raton bankruptcy lawyers of Klein Attorneys at 561-353-2800 to discuss your situation.