A huge mistake that many of my clients make is that the cash in their 401k plans or IRA accounts in order to pay off debt. Most of these clients have already made this mistake prior to meeting with me. Their intentions are good, trying to pay down their debt, but they are usually motivated by panic and the fear put in them by ruthless debt collectors and they make the decision without knowing all of their options. Therefore, they usually make the wrong decision to liquidate retirement accounts and they end up regretting it later.
The truth is that retirement accounts that are ERISA qualified, which bascially means that you will incur a tax penalty if you liquidate the account prior to retirement age, are not reachable by creditors. The prevailing public policy is that people need these retirment funds available to them for living expneses once they retire, thus creditors are not legally permitted to levy and liquidate these accounts. These accounts are fully exempt from the reach of creditors whether you are in a bankruptcy or not.
If you are experiencing financial difficulties and are struggling to pay your bills, it is important that you consult with an experienced bankruptcy attorney, who can help you navigate these difficult financial issues and advise you as to the ramifications of such decisions. Normally, my advise would be to never liquidate your retirement accounts, what you are basically doing if you do liquidate these accounts is taking a fully exempt asset and converting them to a non-exempt asset. These means the funds are now reachable by creditors.
So please, before you take the drastic step of liquidating your retirement account, contact Capone & Keefe (888-540-4795) and let our professionals help you make the best decisions for yours and your family’s financial future.