How soon can I touch exempt (401K) assets after?

[jimnbene]

I have not yet asked the attorney but I will be asking.

I thought that someone might have experienced this question:

How soon after the 341 meeting can I touch my 401K money?

Do I need to wait for the final discharge or is there a time before that when I can access those funds?

Thanks for anyone who has experienced this before.

Jim

[justbroke]

The real question is "should I touch my 401(k) money after my 341 Meeting). The answer is you shouldn't.

So, I'll answer your original question now. Technically, you should wait until after your discharge before touching your 401(k) money. Why other, and I, will tell you not to touch 401(k) money anyhow, is because the penalties can be significant.

What are you trying to do?

[jimnbene]

I can appreciate the advice. I would love to not touch the money in the 401K, but as I am still unemployed and don't know when I will have a job, I will need to access the money.

I am beyond 55 and got laid off, so there are no penalties as I qualify under the IRS rules, but I will have some money withheld for taxes .. just won't be that extra penalty.

I will need the money to pay for "living".

Got a nice severance and retention bonus for staying until the end, but I paid 95% of that on a 401K loan with the intention of accessing it after the Ch 7.

I had posted my first question about making the repayment on the loan and the advice was I might cause problems ... when I finally met with a lawyer and told him what I had done he said "Perfect thing to do with the money and he would have advised me to do just that".

Since that income was received in July, I have to wait until after Feb 1 to file, so that money is not part of a means test for Ch7 qualifying. With only unemployment since then, no problem qualifying.

So ... short answer to the long story is .. I will need to use that money to survive on.

[justbroke]

I now understand. Please realize, that you could jeopardize the availability of future retirement income, so tax penalties aren't the only reason why we tend to advise against it. I think the conversion of the non-exempt asset (severance) into an exempt asset (401(k)) was a good use as well.

I'm assuming that, maybe, a good percentage of that 90% was actually deferred but post-taxes, meaning you don't owe any tax on it except for any gain realized.

I knew a guy, now deceased, who got laid off in about 1997. He was on "vacation" -- living on his lucrative 1990's based 401(k) -- from 1997 until he died in 2005. Like you are probably realizing, he had a lot of trouble getting back into the job market, both due to age and the length of time being out of the marketplace. It was really sad.

I hope that you will do better.

[JackBondLove]

I initiated a distribution from my IRA the very next day after Chapter 7 filing.

I also plan to regularly tap my IRA, even though I am in my mid 40's. I plan on living like a college student in Eastern Europe.

[jimnbene]

Jack (JackBondLove),

Thanks for that reply. Was that based on advice from your attorney, or did you file Pro Se?

I asked the clerk I worked with at the attorney's office when we filed. We actually filed on Feb 23rd and I have my 341 meeting on April 5th.

I am concerned that if you are ask about any money you have at that meeting and you had received money from your 401K, it would be lying to answer that you don't have it ... or that you spent it on something, even something necessary.

I certainly like the answer you gave, I just wondered if you could clarify your answer.

[pandacb]

I asked our attorney if I could take a hardship withdrawal during the process if I need the money to survive. He said yes, if absolutely necessary, but to take it after the filing because the date of filing is "a snapshot" of your life and money on that date.

[JackBondLove]

Jack (JackBondLove),

Thanks for that reply. Was that based on advice from your attorney, or did you file Pro Se?

I asked the clerk I worked with at the attorney's office when we filed. We actually filed on Feb 23rd and I have my 341 meeting on April 5th.

I am concerned that if you are ask about any money you have at that meeting and you had received money from your 401K, it would be lying to answer that you don't have it ... or that you spent it on something, even something necessary.

I certainly like the answer you gave, I just wondered if you could clarify your answer.

*** I basically knew that the filing date is the snapshot, but asked my attorney about it in any case to make sure.

*** If a distribution from the IRA were done before the filing date, then not only would it be income (if from a traditional IRA), but it would also be part of the bankruptcy estate, with the problems of spending that money on non-essential items being considered as "attempting to hinder creditors". Now, if you would be spending it on food and shelter, certainly that would be considered as essential.

[dougmarino]

Tapping into retirement funds after filing Chap 13

Before talking to our attorney, I just wanted to get some opinions on this issue.

My wife filed Chap 13 and I am going to file Chap 7 within the next several weeks or a couple of months. We recently made our final lease payment on a Mercedes. We need a second car anyway so my issue is that my wife and I both have fairly substantial funds in retirement plans and were wondering if it was worth it to tap into our retirement to take out the cash we need to purchase the Mercedes outright or should we consider other options?

The reason we are considering this is that, well, we love the car, it is only a 2008 with very low mileage and we laid out a ton of money in upfront costs, upgrades, etc.

The questions are these:

Is this even allowed?

Who's retirement funds should we consider using for this?

Do we have to notify my wife's trustee?

What other options do we have to get a car?

We have pretty substantial income and can make payments, even paying my wife's Chap 13 plan payments, we just have lousy credit and no cash on hand. We can get the car for < $30K. Most decent newer cars will run around that anyway.

Any suggestions?

Thanks,

Doug

[keptdigging]

I read something interesting. Most 401(k)s are set up in such a way that they are not part of the bankruptcy estate. That is they are unaffected by your filing. Theoretically you could touch them the next day (on the day before, of course, you're creating an asset -- cash -- that will become part of the bankruptcy estate.)

IRAs, on the other hand, are covered by an exemption. They become part of the estate, but are exempt (to some limit around $1M.)

I have no idea how this technical distinction filters down to individual districts, judges, and trustees.