Posts Tagged: ‘401(k) retirement accounts’

How Debt Can Sabotage Your Retirement Plans

July 25, 2018 Posted by kingcade

Getting out of debt can be tough at any age, but for those nearing retirement age the challenge can be particularly daunting.

According to an Experian study published in 2017, Baby Boomers hold on average approximately $188,828 in mortgage debt and over $27,000 in other debt. Consumers who are considered Generation X who are now entering their 50s hold even more debt, with $231,774 in mortgage debt and $30,334 in other debt.

While it is normally agreed that younger individuals are more likely to carry debt because they are just starting their lives and have a longer period to pay off the debt, the survey showed that only 18 percent of households with workers 50 years or older did not have any debt. The most common types of debt include: credit cards, mortgages and car loans.

People who carry debt tend to have less discretionary income to save for the future, especially when it comes to retirement. However, with pensions being eliminated and the uncertainty of Social Security benefits, the need to save for retirement is more important now than ever. It is a given that workers need to contribute towards their 401(k) accounts, which many do. However, more workers are also borrowing from their 401(k) accounts- and paying the price for it.

In fact, approximately one in six workers over the age of 50 have taken a loan from their 401(k) to pay off some other type of debt, an unplanned major expense, medical bills or other financial issue. In the past, emergency savings accounts were meant to help people through these types of financial issues, but currently, for workers who are over 50 years old have only an average of $10,000 in their savings accounts.

The problem with borrowing from a 401(k) is it can be risky for the borrower. Many times, if the person cannot repay the loan from the 401(k) within a set period for any reason, he or she will end up owing the IRS a great deal of money, which can include a 10 percent early withdrawal tax penalty.

Prior to the 2017 tax law, a person who borrowed from his or her 401(k) had 60 days after leaving a job to repay the loan, or a penalty would be assessed. However, for loans taken from a 401(k) after the start of 2018, and the person leaves a job, the borrower can put the money back into the plan, into an IRA or a new 401(k) plan up until October of the following tax year to avoid the penalty.

How are retirement accounts treated in bankruptcy?  Individual retirement accounts like 401(k)’s and IRA’s are protected in bankruptcy, along with social security and pensions worth up to $1.245 million are all exempt from creditors during bankruptcy. This means that retirement income and savings are out of reach and protected under federal law.  That is why you should never pull from retirement accounts to pay off debt like credit cards or medical bills you cannot afford to pay.

Some people think that filing for bankruptcy means they will lose everything.  That is one of the biggest bankruptcy myths out there.  To the contrary, you will likely get to keep a lot of your possessions including homes, cars and other assets.  A vast majority of Chapter 7 cases are “no-asset” cases, which means the debtor is not required to give up any of their possessions.

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If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

 

How Student Loan Debt Can Affect Your 401K

May 14, 2018 Posted by kingcade

Student loans and retirement planning may not seem like two things that would affect each other. Usually, the first thought after graduating is to get a job to start paying back student loan debt. However, student loan debt has become an increasing problem when it comes to saving and planning for retirement.

More and more students are graduating with student loan debt today.  And for those starting their careers fresh out of college, many are finding it hard to save for retirement along with meeting their monthly obligations, the biggest of these being student loan payments.

New research shows that families age 45 to 54 with zero student loan debt have an average 401(k) balance of $80,000. Take that same age demographic and add the issue of student loans, and the median balance for their 401(k) drops to $46,000. Families who have heads of household younger than 35 with student loans carry a median 401(k) balance of $8,000.

Some companies are helping their employees with student loan debt. In January 2016, Fidelity launched a program to help their own customer service associates pay up to $2,000 of student loan debt annually, with a lifetime maximum of $10,000. Fidelity employees responded well to the program with 8,400 employees taking advantage of it, the majority of them being in the younger demographic.

Another company, Gradfi, a fintech company, started a student loan repayment program, offering this service to 100 employers in 2016. Gradfi is now working with 350 companies across the United States, including Peloton and Pricewaterhouse Coopers. Employers can use these programs to draw in key hires, but also work on retaining employees once they are hired.

One downside to these student loan repayment programs, however, is the fact that these employer payments must be considered as taxable income to employees.

For the time being, it is advisable to factor in both payments on student loan debt and contributions to retirement savings. Every bit helps and making those smaller contributions today will build up to larger contributions over time as student loan debt decreases. Take advantage of employer-matched money when making these contributions, and speak with your financial advisor to see how much you can contribute comfortably.

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For borrowers who are struggling with student loan debt, relief options are available.  Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt.  It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

 

 

What happens to my 401(k) if I file for bankruptcy?

January 30, 2018 Posted by kingcade

Some people think that filing for bankruptcy means they will lose everything.  That is one of the biggest bankruptcy myths out there.  To the contrary, you will likely get to keep a lot of your possessions including homes, cars and other assets.  A vast majority of Chapter 7 cases are “no-asset” cases, which means the debtor is not required to give up any of their possessions.

Another asset protected in bankruptcy is individual retirement accounts.  In fact, social security, 401(k)’s and pensions  worth up to $1.245 million are all exempt from creditors during bankruptcy. This means that retirement income and savings are out of reach and protected under federal law.

We have filed bankruptcy petitions for clients with more in their retirement accounts than on their credit card statement. A Chapter 7 bankruptcy allows you to hold onto all of your retirement savings and keep every penny of your 401(k).

However, this is only the case if the money remains in your 401(k) retirement account.  Removing funds from the 401(k) or any retirement account before filing for bankruptcy turns the funds from a protected asset to an unprotected asset.  It is important to speak with an attorney, especially if you have recently lost your job and have considered pulling from your retirement savings to help pay for day-to-day living expenses.

If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

http://time.com/money/4367416/bankruptcy-myths/