If you are a responsible adult, then no doubt you are either already or planning to build retirement accounts for yourself. Besides your home, if you own one, these accounts are likely your highest value assets. That makes them targets needing protection, especially if someone has won a lawsuit against you.
What that means for you is the years and money you’ve set aside for your future could be at financial risk if you don’t have an asset protection plan in place. Figuring out such a strategy is not impossible, but does require patience and work. First, you need to assess what retirement accounts you are using and what protections it may or may not already have. For example, most employer-sponsored plans like 401(k)’s are covered under the Employment Retirement Income Security Act (better known as ERISA), making them protected from creditors. However, if the creditor is either a former spouse or the IRS, then that veil could be potentially pierced.
Let’s say though that you are an investor or entrepreneur, so you are using a non-employer-sponsored plan. Individual accounts like this are usually not covered by ERISA, except under particular circumstances. For example, if you are forced into a bankruptcy filing then federal legislation can shield up to $1 million dollars in IRA monies as long as you directly contributed to said plan. Or if you rolled your money from a previous company plan into an IRA, then the whole amount is protected – good bookkeeping records to prove this are invaluable.
If you are not forced into bankruptcy, then state law determines whether your IRA money is protected against creditors. For example, in states like New York, New Jersey, and Connecticut, your funds are protected as long as they remain within the account(s). Where this may apply to you directly is if you want to roll 401(k) assets over into an IRA. Let’s say you want to do this for estate planning purposes, but if you end up in a state where that IRA is unprotected from creditors because of state law, then you may be forced to think twice. The same worry also applies if you have a cash balance-based pension. If you withdraw the pension balance, then that money could end up exposed to a creditor claim, and you might have to pay income tax on top of the withdrawal too.
Furthermore, if you want to leave an IRA to your family via estate planning, then that money may not be protected depending on what states they live in as well. As you can see, there are various ways creditors can potentially get their hands on your money. The trick is anticipating those potential attacks and crafting an asset protection plan that can counter them immediately. For example, leaving an IRA to a Trust can shield your money and keep it both accessible for yourself and your heirs. One of Anderson Advisors’ specialties is asset protection for people like you wanting to avoid these kinds of problems. Depending on your current retirement accounts, estate planning needs, and other financial goals, we can work with you to determine the best plan and legal instruments to protect your assets solidly.
Everyone prepares differently, so let’s figure out together the best plan that does what you need it to do and go from there. To get things started, just contact us today and schedule a FREE 30-minute strategy session with one of our advisors. They can help analyze your current situation and together you can formulate the correct plan to start protecting your retirement immediately.