opening up a 401k

[StEt0417]

We had planned on filling ch. a couple weeks ago but after talking to our attorney we decided it was best to wait until we are further in the foreclosure process to save as much money as possible. Our attorney suggested we start a 401k. Would it be ok to start one now? We probably wont file for 10 -12 months from now. Right now is open enrollment at work so if we wanted to we need to do it now.

[chicagoed195]

I can't answer as to whether or not you are able to afford to make a 401(k) contribution. Obviously, if you are considering bankruptcy you already have some cash flow issues. This is more likely planning to convert non-exempt assets (cash) into exempt assets (retirement funds) and to reflect an ongoing payment that in many districts will be allowed to reduce your disposable net income.

[sguerra923]

What is better 401k or IRA?

[mountanddo]

What is better 401k or IRA?

I think a 401k is a company plan and an IRA (individual retirement account) is for anyone to open. Each depends on how the funds are invested.

[chrisdfw]

a 401k is probably better because it is not even part of the estate. An IRA has some advantages because you can get the money easier, but that can be a disadvantage as well. IF your employer has a match, you are always better off to get the free money by using the 401k.

[ksgirl38]

I have one of each. If your employer offers a match on the 401k then I would contribute at least enough to get the match. That's basically free money. The IRA I started last year, but had to stop contributing this year. As someone mentioned earlier, I believe it is easier to withdraw from later should you need to. A friend of mine used hers as a downpayment on her house.

Either way, your money is safer in a 401k or IRA over anything else. You won't lose it in the BK.

[jacko]

You should contribute to the max if you can regardless of the match. 401k balances are exempt from creditors.

[ksgirl38]

Another thing to consider is opening a separate account outside of your employer's 401k. For awhile there it seemed I was seeing so many people in the news who lost their 401k's because their companies went under. Personally I'm one of those people that likes to keep my eggs in separate baskets. I've worked in retail companies in the past where if the company had trouble your 401k tanked so maybe I just look at things differently. Plus should you ever leave that employer you already have something set up to roll the 401k into if you need to.

[joshuagraham]

As I understand it, any retirement contributions that are made within a year of filing are confiscatable. (Perhaps that is a rule that differs per the state.)

[catleg]

401k/403b/IRA plans are, to me anyway, the best way to judgment proof your savings for the average working man.
Up to some limit ($1M?) they are exempt from bankruptcy and state judgment execution. It is the best loophole remaining in personal bankruptcy/asset protection planning post -BAPCPA (2005). In a ch13 depending on your trustee, district and the state of the DOJ system, you can potentially shield your full annual contributions plus your full annual loan repayments. That can be a lot of money and creditor attorneys do not like it. But like the FLorida homestead exemption there is little they can do to stop it. You shoud also be very aware of state level protections for pensions and proceeds of life and disability insurance contracts. Practically any retired cop in NJ can file a chapter 7 regardless of the median income and with proper planning his pension is exempt. Thus an older man 50's or 60's facing a crippling medical or business loss can still get a fresh start.
the other card in my chapter 13 which I held in my back pocket to be played if things got really bad would be to convert all my pre-tax IRAs to roth IRA's creating a huge "non consumer" tax item. Then drop out of the 13 and refile or convert to a 7. Get the discharge, or go through the 13 with all tax debt and nothing for unsecureds.
That is like calling in an artillery strike on your own position while it's being overrun by the enemy but I think it would work and probably be cheaper and less hassle than trying something like an individual chapter 11.

[jedolaw]

I guess the only 401k I would want is one backed by gold!

[Logan]

I guess the only 401k I would want is one backed by gold!

Because gold has performed so well over the last 10 years?

[frogger]

I guess the only 401k I would want is one backed by gold!

Jedolaw - perhaps you should read the rules about reviving old posts. Don't do it!