401K Withdrawal or Bankruptcy? Which One Is Better?
As a Consumer and Bankruptcy Attorney, I meet with people everyday to discuss Bankruptcy and other available Consumer remedies. I always tell people not to touch their retirement savings because a 401K and IRA are protected 99.99% of the time when a consumer files for bankruptcy.
Recently, Fidelity released its report on the status of the 401(k) programs that it manages. Some of the highlights, or perhaps better described as lowlights, “(1) participants who borrowed or initiated an application to borrow from their plans reached a 10 year record high and (2) nearly 45% of borrowers who received a hardship withdrawal in the past year took another one this year.”
Obviously, this hurts when I see this. It is a shame that people are being forced to spend their retirement savings to survive. Then, they could be penalized and taxed on the money.
Bankruptcy may provide an alternative to having to take an early withdrawal from your 401(k), allowing the individual to avoid costly penalties and taxes as well as safeguarding a potential source of retirement income.
As I said earlier, in the State of Florida, most qualified 401(k) plans can be exempted from a Bankruptcy estate, allowing the individual(s) to reorganize or eliminate their debt while protecting also protecting their nest egg. IRAs also enjoy the same form of protection, subject to some limitations.
If this blog protects one retirement plan, it was worth it.
David M. Lampley, Esq. is a Consumer and Bankruptcy Attorney with The Dellutri Law Group, P.A. David works out of the firm's Fort Myers and Naples offices. He practices in the State and Federal Court's in Florida.
