Many people believe they will lose their retirement money if they file for bankruptcy. This is not true. Many clients meet with me and state that they “cashed out their retirement and are ready to file bankruptcy.” This is not necessary. Retirement accounts and pension plans are fully protected in bankruptcy. There are federal and Mississippi laws that protect your retirement money when you file bankruptcy. This includes accounts like 401(k), IRA, Roth IRA, SEP, 403(b), Keoghs, profit-sharing plans, and defined-benefit plans. Any ERISA Qualified Retirement Account is protected. In most cases, every penny you have in your retirement account is fully protected, regardless of the amount. But traditional IRAs and Roth IRAs are only protected up to a total amount of about $1.2 million.
Even if your retirement account is not ERISA-qualified, it will still be protected in bankruptcy by both federal and state law. Any retirement account that is exempt from taxation under the Internal Revenue Code is also fully protected by other federal laws. Leave your retirement money alone. Let it work for you over the long term and don’t worry about losing it if you need to file bankruptcy.
