Like any other asset, protecting your retirement account is necessary. In order to do so, it’s important that you know the rules and strategies that will help protect you in case the unexpected happens. Afterall, the last thing anyone wants is to jeopardize their life savings. Read more about how you can protect your retirement investment below.
Protecting Your Retirement Accounts
Aside from real estate property, retirement plans are probably the most valuable asset for most people looking forward to a better life when they reach retirement age. Therefore, protection of these accounts is significantly important to prevent losing your hard-earned money. In order to effectively do so, it is wise to familiarize yourself with the protections provided to retirement accounts in both non-bankruptcy and bankruptcy situations.
Types of Retirement Plans
There are two main types of retirement accounts: an employer-employee plan and individual-only plans. The former are arranged by your employers like qualified retirement plans (QRP) and pension plans. The latter includes traditional individual retirement accounts (IRA), simplified employee pensions (SEP), and savings incentive match plans for employees (SIMPLE) among others.
Employer-employee retirement plans are agreements between you and your employer, which are typically known as 401(k) and Roth 401(k) plans. They are protected by the Internal Revenue Code Section 401. Another kind of plan that falls under this category is a pension plan. In contrast to 401(k) plans, pension plans are regulated by the Employee Retirement Income Security Act (ERISA) of 1974.
How Do You Protect a Retirement Account?
When filing for bankruptcy, the federal law mandates the creditor protection regardless of savings type under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The employer/employee retirement plans get full protection, which is mandated by ERISA. Individual-only plans are governed by state laws and protected up to $1 million.
Staying up to date with these laws is important to protect your retirement plans. State laws and government institutions guarantee that you get the best protection when the need arises to defend your accounts. Also, you must do your part in researching the laws governing your retirement plans as the rules vary per state. Check out what laws are available in your state.
Are you planning to set up your retirement accounts? Watch this video by Howcast to know how:
Do you know of any effective ways to protect retirement accounts? Share your thoughts with us in the comments section below.