Is my 401k Protected in Bankruptcy?

One of the most pressing questions we receive from potential clients is whether they’ll lose everything as a result of having to declare bankruptcy. This is often because of common myths or misconceptions which confuse many people into thinking bankruptcy will no doubt ruin them for the rest of their lives, and thereafter. This could be particularly devastating to those who have worked hard to save for their retirement and built up substantial IRAs, including a sizeable 401(k) or an investment portfolio.

While it’s no secret that bankruptcy is a serious matter and does have serious consequences, the good news is you may not have to lose everything you worked so hard to achieve to this point. In fact, you may not even have to jeopardize your future and risk losing what’s in your investment accounts. Let’s look at how.

Florida Bankruptcy Exemptions

Florida is one of a few states to have almost entirely opted out of the federal bankruptcy exemption schedule, instead opting to allow residents to abide by a different code unique to our state. In some cases this code is better for consumers and protects more, while others are more restrictive.

Fortunately, Florida’s allowed exemptions for pensions and retirement savings are incredibly good for consumers, allowing them to instead keep a huge portion, if not all of what they have thus far.

The following types of accounts are completely exempt:

• ERISA-qualified plans, including 401(k), 403(b), profit sharing, money purchase, SEP, and SIMPLE IRA’s.
• Public employee (including teachers) retirement benefits
• Firefighter and municipal police pensions

The following accounts have exemption limits:

• IRA’s and Roth IRA’s are exempt up to $1,171,650.

Strategically Using Exemptions

Using other exemptions to your advantage is a great way to make sure any retirement funds that aren’t covered by these exemptions can still be protected. For example, Florida allows you to exempt the entire value of your home and property, provided the property is within a certain size limit and you’ve owned it for a particular amount of time. Second, Florida allows you to protect an additional $4,000 of personal property through a “wildcard” exemption if you do not use the homestead exemption.

Because exemptions can be difficult to properly utilize, it’s strongly advised you work with a Brevard County bankruptcy attorney to organize your assets and put your exemptions to work in the best way possible. Careful planning can make the difference between being able to recover and live life comfortable when you reach retirement age or being forced to continue working.