Extreme Caution: Invading Your IRA or 401(k) to Relieve Money Problems Might Ruin You
When faced with paying your personal Maryland, Delaware, Pennsylvania or Virginia bills, considering whether to invade your IRA or 401(k) may seem to be a worthwhile possibility.
Before you decide to draw down your IRA or your 401(k), you should know that except for the IRS, creditors in in the United States cannot reach your IRA or your 401(k) to satisfy their claims against you. Even if your creditors get a judgment and they begin to seize wages, bank accounts, or other assets, they can’t get your IRA or your 401(k).
It is especially important to remember that your IRA or 401(k) are assets that could make all the difference in the quality of your retirement or your post-bankruptcy financial life. Before you decide to invade that IRA or 401(k), you want to take into account the protected status of these assets and the crucial role they play in your retirement or your post-bankruptcy financial life.
Another consideration for you to take into account in whether or not you want to pay your bills with that money is that the withdrawn money becomes part of your taxable income. As part of your taxable income, you’re going to have to pay taxes on it. If you pull the money out of your IRA or your 401(k), you’re also likely to have to pay a penalty of about 10 percent on the withdrawn amount. This tax penalty is a very big price to pay for invading those funds to pay creditors who could otherwise be discharged in your bankruptcy case.
Many of my clients who could have had a clean bankruptcy case where all their debt was dischargeable found themselves in a much more difficult position because they couldn’t afford to pay the tax on their early retirement account withdrawals and then owed nondischargeable tax debt to the IRS and the state government.
Before you decide to do invade either of these retirement assets, you should definitely consult a bankruptcy attorney to make sure that you don’t dissipate that valuable asset.
If you have questions about whether you should draw down your IRA or 401(k), please pick up the phone and call me at phone number 410-484-9000. I’d love to hear from you.