Retirement & Financial Planning

Retirement Accounts – Protected in Bankruptcy?

May 1, 2019 by Frank

Retirement Accounts – Which Ones Are Protected in Bankruptcy?

Knowing the Bankruptcy Rules Can Help Protect Your Assets From Your Creditors

When employees who have contributed to their employer’s 401(k) or 403(b) retirement plans leave their place of employment, they are often faced with this major financial decision.

“Do I leave my retirement funds in my (former) employer’s 401(k) plan, roll those funds into my new employer’s 401(k) plan, or roll the funds into a new or existing IRA?” Factors that may impact your decision are that the former employer may not allow you to maintain your retirement funds in your old 401(k) plan and the new employer may not allow those monies to be rolled over into the new employer’s retirement funds. There are also investment factors such as the diversity of investment options within the different employer plans, the historical performance of the different plans, accessibility to those monies, etc.

When making such a major financial decision, you should FIRST consult with your advisers . . . your financial investment adviser and tax professional, at a minimum.

Many people mistakenly believe that all retirement funds are 100% protected from claimants in bankruptcy. That is not necessarily true. While we are speaking about bankruptcy, you may be thinking that bankruptcy is not of concern to you. Hopefully, it is not. But we have seen taxpayers in our office with very significant IRS tax debt problems who have either filed for bankruptcy or have at least considered it. Before finding themselves in financial distress, they too were never concerned about bankruptcy.

It is our non-legal understanding that employer-held pension, 401(k) and 403 (b) accounts are 100% protected in bankruptcy. If bankruptcy is of concern to you, you need to consult with an experienced bankruptcy attorney.

However, the same protection does not hold true for IRA accounts you hold. Effective April 1, 2019, the inflation-adjusted cap on IRA bankruptcy protection will increase to $1,362,800 (up from $1,283,025). This cap applies only to IRA or Roth IRA contributions and earnings on those funds. It does not apply to company retirement plans.

What if you were to roll 401(k) monies into your IRA account and the balance in that IRA account exceeded the $1,362,800 protection cap? Have you now exposed the funds in your IRA that exceed the IRA protection limit to your claimants?

There is good news. For purposes of the Bankruptcy Abuse Prevention and Consumer Protection Act, a rollover IRA is a traditional or Roth IRA account that was originally funded through a transfer from a qualified retirement plan. Qualified retirement plans include standard 401(k) plans, traditional pension plans and certain profit-sharing plans. Under BAPCPA, a properly executed rollover IRA (be sure to consult with your tax professional as to how to properly execute an IRA rollover) originating from a qualified retirement plan is fully shielded from creditors in a bankruptcy. The aforementioned ERISA protection continues even after the company plan assets are rolled into an IRA. Thus, it is possible to combine monies from former employers’ retirement plans with your IRA monies and have those funds protected in bankruptcy.

It is very important to maintain accurate and complete financial records when ERISA monies are combined with IRA monies to prevent an issue in bankruptcy. The burden is on the person filing for bankruptcy to delineate between IRA contributions/earnings and his 401(k) rollover dollars. If the IRA owner was very successful with his IRA investments and his/her IRA contributions and earnings began to creep toward (or exceed) the new $1.362 million cap, it would be important for the account holder to understand his potential bankruptcy exposure if supporting documents could not support the separation of ERISA and IRA monies.

Since maintaining records can be a challenge to some individuals, an easier course of action may be to maintain two IRAs – one for IRA contributions and earnings – and the other for the ERISA 401(k) rollover dollars to an IRA.

While the maintenance of separate accounts is not explicitly required under law, it helps to avoid potential issues during a bankruptcy proceeding. With separate accounts, the origin of assets is easy to document and the asset pools are easy to track for purposes of securing all available bankruptcy protections.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2019 Keystone Financial Solutions, Inc. All rights reserved. BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Get IRS Transcripts Now

March 19, 2019 by Frank

Avoid the Rush: Request Your IRS Transcripts Online Today

It’s a Good Idea to Obtain a Copy of Your IRS Tax Return Transcripts – You Never Know When You Will Need Them

Most taxpayers maintain copies of their IRS income tax returns. Most taxpayers do not request copies of their tax return transcripts. Transcripts can prove valuable when you are refinancing a home or requesting a loan. A third party (e.g., a lender) may prefer seeing your transcripts because anyone can print a tax return today online. How does one know if the copy of the tax return provided is true and correct? A tax return accompanied by an IRS transcript may give the lender more credence that the return you are sending them was actually filed with the IRS.

How to Request A Transcript from the IRS:

The IRS makes obtaining your tax transcripts relatively easy. Visit the IRS website at Get Transcript Online. Due to concerns about ID theft, taxpayers must pass the Secure Access identity verification process. Select the “Tax Return Transcript” and use only the “Adjusted Gross Income” line entry. If you maintained a copy of your prior years’s tax return, you will need it as the IRS asks for you to enter your Adjusted Gross Income (AGI) as part of its security verification process.

While on the IRS website, you will notice that the IRS allows you to receive your transcript by mail. You can also call the IRS at 800-908-9946 to obtain a transcript. Again, the IRS will request your prior year’s AGI so be sure to have that tax return in front of you when you call.

The IRS has redesigned tax transcripts to partially mask all personally identifiable information for any person or entity on the 1040-series return. All financial entries remain fully visible. Taxpayers who need a tax transcript for income validation purposes can still use Get Transcript Online or by Mail. Review About the New Tax Transcript and the Customer File Number for more details. If you call the IRS and request a copy of your tax transcripts, you can request that an unredacted transcipt be sent you.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

New Medicare Cards

February 26, 2019 by Frank

New Medicare Card Mailing Is Complete

New Medicare Cards Have Been Issued, These Action Steps Need To Be Taken

In our June 5 2018 blog posting, we discussed that Medicare recipients were going to receive Medicare replacement cards. Whereas the former Medicare cards reflected the recipient’s Social Security Number (SSN), the new replacement cards do not reflect SSNs. This change was made to minimize the persons who had access to a taxpayer’s SSN.

Tax Tip #1:

Carry and use your new Medicare card where you need care.

Protect your Medicare Number and card. Although physicians’ application forms typically ask for your SSN, there is no requirement that you do so.

Tax Tip #2:

If you have not yet received your new Medicare card, sign into your secure MYMedicare.gov account to see your Medicare number and print your official card.

If you do not have a MyMedicare account, sign up for free at MyMedicare.gov.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Medicare Card Scam

June 5, 2018 by Frank

Medicare Card Scam

Temporary Medicare Card Scam

Although you may not be enrolled in Medicare, you may have family members, neighbors or employees who are, and this is important information that should be shared with them.

Medicare is administered by the Centers for Medicare & Medicaid Services (CMS), a federal agency within the U.S. Department of Health and Human Services (HHS). Due to concerns about ID theft, CMS is mailing to all Medicare recipients a new Medicare ID card. This has been a year-long project to hopefully deter ID theft of Social Security numbers (SSNs). Despite the headlines of major companies who have had data breaches, many of the ID thefts have originated in the medical industry (e.g., doctors’ offices, hospitals). To help combat ID theft, an important step [Read more…] about Medicare Card Scam

Customer Needs Analysis

May 2, 2018 by Frank

Research, Research & Research – And Adapt

This list of companies is quite impressive: Blockbuster Video, Xerox, Kodak, U.S. Steel, Polaroid, Borders Books, Sears, Pan-Am, Hummer, Blackberry, Abercrombie & Fitch, JC Penny, and many other major brand-name companies. These companies used to be considered some of the brightest and best in their industry. However, their failure to assimilate and adapt led to their ultimate or eventual demise. Tunnel vision is common today. When one has a successful business, the assumption is often made to just keep doing what has always been done and those profits will continue to pour in.

Successful companies (and individuals) need [Read more…] about Customer Needs Analysis

SOCIAL SECURITY AGE CONSIDERATION: DOES WORKING AFFECT BENEFITS?

April 10, 2018 by Frank

SOCIAL SECURITY AGE CONSIDERATIONS

DOES WORKING AFFECT BENEFITS?

Some individuals retire and begin to collect their hard-earned Social Security retirement benefits. What happens if they decide to work in their retirement years?

First, the individual is allowed to receive Social Security retirement benefits and work at the same time. However, if the person is younger than full retirement age and makes more than the yearly earnings limit, the Social Security Administration (SSA) will reduce the recipient’s monthly benefit. Here is how the reduction works. [Read more…] about SOCIAL SECURITY AGE CONSIDERATION: DOES WORKING AFFECT BENEFITS?