401(K) Rollover and CH7

[Strapped4Csh]

Hey all,

As our time approaches to file CH7, we're trying to figure out how to fund it. I have also recently left my job for a new position and am considering taking my 401(K) funds (about $20k after I pay the tax man) as a lump sum payout and rolling the majority of that payout into an IRA. The only cash I would hold out of the rollover would be the $1500 to pay my attorney. The idea of taking that money from my retirement doesn't appeal to me, but we don't really have any other options (We've already been gifted money from family just to help make ends meet while my wife has been out of work).

My question is am I going to have an issue with the trustee seeing this large amount of money change hands? Logic would say that as long as I can document what happens it shouldn't be a problem, but I've learned here that trustees and logic don't always have to go together .

[keepmine]

This is a huge mistake. These funds are exempt assets. I'd not cash them in.
Have you stopped paying all debt that you wish to discharge? If not, do so and use that money for living expenses and legal fees.
Also, will you be able to support yourself post bk? If not, you may not be ready to file.

[catleg]

I would recommend not touching that money. If you absolutely cannot figure out any other way to pay the lawyer, I'd then take a distribution from the 401k of just enough to pay the lawyer.

The stable value choice in the 401k probably pays a better yield than anything you can get in an IRA.

Generally 401k assets are explicitly protected by federal BK law, while IRA's depend on state law for their exemptions. I have seen cases involving fraudulent transfers involving IRA's but I suspect they have involved the individual taking possession of the funds during the transfer between custodians.

Now if you're really flush, there is an option in 2010 to convert IRA's to roth IRA's by paying the taxes due, but somehow I doubt most of us here are rolling in dough.

[banca rotta]

Hey all,

As our time approaches to file CH7, we're trying to figure out how to fund it. I have also recently left my job for a new position and am considering taking my 401(K) funds (about $20k after I pay the tax man) as a lump sum payout and rolling the majority of that payout into an IRA. The only cash I would hold out of the rollover would be the $1500 to pay my attorney. The idea of taking that money from my retirement doesn't appeal to me, but we don't really have any other options (We've already been gifted money from family just to help make ends meet while my wife has been out of work).

My question is am I going to have an issue with the trustee seeing this large amount of money change hands? Logic would say that as long as I can document what happens it shouldn't be a problem, but I've learned here that trustees and logic don't always have to go together .

I'm pretty certain (but don't quote me on it please) you can roll your exempt 401k funds into a rollover IRA even during the process providing it's a straight rollover.

What you want to do however is cash out then put the money in an IRA, all but $1500 and I think you might have a problem. The instant that money leaves an exempt retirement account it's a non exempt asset.

If you do all this just before filing as was mentioned earlier that maybe considered a fraudulent transfer.

You may need to look for an alternative to get the legal fees even if you have to wait to file or you risk losing your retirement savings.

[backtoschool]

I'm pretty certain (but don't quote me on it please) you can roll your exempt 401k funds into a rollover IRA even during the process providing it's a straight rollover.

What you want to do however is cash out then put the money in an IRA, all but $1500 and I think you might have a problem. The instant that money leaves an exempt retirement account it's a non exempt asset.

If you do all this just before filing as was mentioned earlier that maybe considered a fraudulent transfer.

You may need to look for an alternative to get the legal fees even if you have to wait to file or you risk losing your retirement savings.

The rollover from the 401k to the ira has to be a direct rollover with no cashing out, to not be looked at as a last minute transfer of money. Since both 401k's and IRA's are exempt, moving the money directly from one account to the other without touching the money in an intermediate step, is not looked at as a transfer. You still can put money in an ira and it will be exempt, but trustee's look unfavorably on last minute transfers of money into exempt accounts even though it is technically allowed.

If all you need is $1500, then I would roll the money over directly and pay the 10% fee on the 1500 at income tax time to withdraw it early.

[catleg]

It would be a lot simpler just to take $1500 out of the 401k.
What is driving you to think about rollover to an IRA? Fees, investment choices?

[whipster1]

Do the rollover business LATER. Why risk it now? Why create questions when there is no reason? Ask family, friends, and the dog catcher for the atty money. DON'T risk the retirement money when there is no need to.