How Bankruptcy Will Shield Your Retirement Investments

Bankruptcy Abuse Prevention and customer Protection Act of 2005 (BAPCA), investors facing bankruptcy can now shield their IRA assets from creditors. While retirement plans that meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) such as employer-sponsored plans like 401(k)s and 403(b)s have long been excluded from an individuals bankruptcy estate, BAPCA extended these bankruptcy protections to IRAs and certain other investment products. IRA investors now are even shielded further against creditors than they were before BAPCA. It is common in today's job market for the average worker to change jobs numerous times during a career, resulting in many 'orphan' IRAs that the investor thereby ends up consolidating into a single IRA. So, fear not your portable nature and the investment behavior that led to an IRA consolidation. BAPCA is here to save the day. The following are the shields that a bankruptcy filer will be afforded in regards to their IRA investments:- I have stated that several assets are either excluded from the bankruptcy estate altogether or exempt under federal or state law. In either case (exclusion or exemption), the property remains protected from creditors.

• How much will the bankruptcy sunshade protect and what is protected? All retirement funds exempt from taxes under Sections 401, 403, 408, 408A, 414, 457 and 501 of the federal tax code are now sheltered from the reach of creditors. Contributory and Roth IRA property are crowned at an amount of $1 million. Therefore, there is $1 million cap on the IRA investment amounts. Because of IRA's quite recent inception (1974) and a $2,000 cap on contribution that was in place until 2002, its safe to say that the $1 million ceiling should be big enough sunshade for today's IRA sponsors.
• Section 522: The speech stating, without considering to the amounts attributable to turn over contributions. This means that rollover IRA's are exempted in bankruptcy, thus allowing qualified retirement plan assets that are rolled over to an IRA to exceed the $1 million limit that's in place for contributory or Roth IRA assets. Therefore, 'roll over tactic' should be discussed with your lawyer to provide maximum shelter in bankruptcy.
• Language stating: Except that such amount may be increased if the interests of justice so require. This is once again referring to the $1 million dollar cap. This leaves the court with a lot of wiggle room and may not be a reliable legal crutch. I would advise seeking counsel in the bankruptcy vicinage which you will be filing, to see what of protection can be expected in that district.s
• ERISA: Failed to shield the self-regulating IRA investor, BAPCA saves the day. BAPCA offers welcome protection for sole owners who typically invest in Keogh and/or 401(k) plans.
• BAPCA:It was written to incorporate basic workers Plan (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRA's. These IRA outlays are excluded and are sheltered for unlimited amounts.
• Children education: It is is protected under BAPCA. Coverdell Education Savings Accounts (ESA) and state-sponsored Section 529 college savings programs are included. Any contributions made to these products for a child, grandchild, stepchild, or step-grandchild more than two years before the filing are protected. Those taxes contributed more than 365 days but less than 720 days before the bankruptcy filing are protected only up to $5,000 per receiver.

Considering the many factors involved in bankruptcy proceedings, if you have assets in IRAs or other products potentially affected by BAPCA, consult with your tax advisor for the appropriate strategies for maximizing protection of your assets.