401(k) retirement accounts Archives

SECURE 2.0 Helps Lighten the Burden of Student Loans

Posted on April 10, 2024by Admin

A recently enacted piece of legislations allows employers to “match” any payments their employees make towards their student loan debt, with tax-advantaged contributions to their retirement accounts. This includes retirement savings plans like 401(k), 403(b), IRA, and Roth accounts.

SECURE 2.0 Act has brought about substantial changes to the retirement account rules in the United States. Its primary objective is to encourage more workers to save for retirement.

Student loan debt remains a burden for many people in America. The nation’s collective student loan debt is roughly $1.73 trillion, according to the Federal Reserve. Borrowers pay between $200 and $299 monthly toward student loans, on average.

A recent survey found that more than nine in ten young adults who continued with education after high school faced stress over money and finances that affected their physical and mental wellness. Of that group, 86% said student loans were a contributor to that stress. Nearly half said this debt impacted the amount of money they were able to contribute to retirement.

Putting off saving for retirement can have long-term consequences. Just $10,000 contributed at age 25 grows into more than $100,000 by age 65, assuming a 6% annual return. Waiting until age 35 to set aside that money drives the total return at age 65 to just $57,000.

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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.

Credit Card Debt

How Your Credit Card Debt Can Hurt Your Retirement Savings

Posted on January 14, 2022by Admin

Credit card debt presents a challenge for many Americans. This type of debt comes with higher interest rates and lack any potential tax benefits. Credit card debt should essentially ‘retire’ before you do, because it can eat into your savings and reduce your standard of living.

While paying down debt is important, saving for retirement should not be overlooked. Many times, consumers want to focus all their efforts on paying down outstanding debts, saying that they will start saving for retirement once they conquer their debts. By doing this, however, the consumer misses out on the returns that could be made on any money invested in his or her 20s and 30s. For example, if the consumer begins saving $200 a month, starting at age 20, he or she would likely have around $550,000 to $600,000 saved at an annual return rate of 6.5 percent. If he or she waited until he or she was 25 to save, that person would only end up with $435,000 at retirement.

The problem with credit card debt is the high interest rates, which can make paying a large balance off extremely difficult. Often, consumers will only end up paying the minimum amount owed from month-to-month, which only covers the interest that accrued from the prior month. This method not only prolongs paying off the credit card, but it also delays being able to set aside any money for savings for the future. For someone with a credit card balance of $6,300, carrying an interest rate of 17 percent, paying the minimum payments alone could mean it will take the individual 18 years to fully pay off the card.

The key is to learn how to do a combination of both, saving for retirement and putting enough money towards paying down debts. Not all consumers are able to pay balances off in full, but they should at least make more than the minimum monthly amount owed. Any additional amount will help towards paying down the principal. At the same time, any amount the consumer is able to put away towards retirement savings helps, even if the amount seems small. Savings of any amount is better than the alternative of not saving at all. As more and more debts are paid off, the consumer can take what he or she was using towards outstanding debt and put that amount towards retirement savings. Any amount of progress is better than no progress at all.

How are retirement accounts protected in bankruptcy?

The Federal Bankruptcy Code and Florida bankruptcy exemptions extend protection to various types of individual retirement accounts (IRAs) during a bankruptcy. This protection was solidified in 2005 with President George W. Bush signing the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) into law.

Traditional IRAs and Roth IRAs are protected up to $1 million in value. The precise amount protected is currently $1,362,800. Adjustments are made every three years for inflation with the next one anticipated in 2022. The BAPCPA also states that bankruptcy courts have the discretion to extend additional protection to cover more than the amount allowed under the exemption.

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If you have 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.

Credit Card Debt

Should I Contribute to my 401K or Pay Off Credit Card Debt?

Posted on May 17, 2021by Admin

Credit card debt is a burden that many consumers struggle with. Without a large influx of cash, it can be difficult to pay off outstanding credit card bills. Many consumers also struggle with deciding whether they should focus first on paying these debts off or whether they should be taking any extra funds and saving for retirement in a 401(k) or similar plan.

Paying Off Credit Card Debt

Credit cards come with high interest rates, which can make paying the balance off impossible. The larger the balance gets, the harder it can be to pay down, which is why it can often be a good idea to focus on paying this debt down first. Additionally, paying down the credit card balance to zero will also noticeably improve the consumer’s credit score. A better credit score will eventually benefit him or her for when it comes time to make a big purchase, such as a car or a home. It will also eliminate the monthly payment from the consumer’s budget, allowing him or her the chance to save for the future, including retirement.

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

One in Four Millennials Depleting Their 401(k)s to Pay Down Debt

Posted on May 3, 2019by Admin

According to a new report released by Merrill Lynch and Age Wave, one in four consumers under the age of 34 have made the decision to take money out of their retirement accounts to try and get out of debt. Of the reasons reported for why these individuals took money out of their retirement accounts was to pay down student loan debt or credit card debt.

This is a critical mistake and one that comes with a 10 percent tax penalty, not to mention more long-term consequences. Since any money that goes into a 401(k) account is from pre-tax dollars, the IRS taxes money taken from a 401(k) at a higher rate than normal income.

Not only will a person be paying a higher amount in taxes on money taken from a 401(k), but they will also be jeopardizing their retirement and borrowing against their future wealth. The goal of retiring can seem far off for millennials, but the earlier you plan and save for retirement the better.

The fact that younger consumers feel they have no choice but to reach into their retirement savings comes as no surprise, especially considering the fact that many of these individuals carry a significant amount of credit card and student loan debt. This is before some of them even apply for their first job.

It is estimated that Americans hold a total of $1.6 trillion in student loan debt. The average undergraduate student graduates with approximately $37,000 in student loan debt, according to the Merrill Lynch study. On top of that, these individuals also are carrying an average of $3,700 credit card debt. However, despite this fact, financial experts do not advise using retirement savings to pay off debt.

It is important that consumers be aware of the fact that money in 401(k) accounts is protected in bankruptcy. 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. A Chapter 7 bankruptcy allows you to hold onto all of your retirement savings and keep every penny of your 401(k).

If the amount of debt you are struggling to pay is so unmanageable that you are considering filing for bankruptcy, it is important to remember that retirement savings are protected under Florida’s bankruptcy exemptions. 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.

Related Resource:

https://www.cbsnews.com/news/one-in-four-millennials-with-401ks-are-raiding-retirement-savings-early-to-pay-down-debt/

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

Why You Should Never Use Your 401(k) to Pay Down Debt

Posted on April 17, 2019by Admin

When someone is facing a large amount of debt, it can be tempting to want to use all available resources to pay off that debt. Even if it means taking money out of retirement accounts. However, this could end up costing more than anticipated, delay retirement- and oftentimes the inevitable.

If bankruptcy is in your foreseeable future, the last thing you want to do is use assets that would otherwise be protected in bankruptcy to pay off debts that could be discharged in the bankruptcy case. Unsecured debt, such as credit card debt, personal loans and medical bills, end up being discharged at the end of a bankruptcy case, so it would not be worthwhile to use retirement savings to pay off these debts only to file for bankruptcy later.

Funds in your 401(k) are protected by federal bankruptcy law. While many assets can be used to pay off debts, retirement account funds are protected and cannot be touched under the Employee Retirement Income Security Act (ERISA). This law sets minimum protection standards for anyone who voluntarily contributes to a retirement account in the private sector. Florida also allows for exemptions for IRA accounts in bankruptcy.

The problem is many individuals try to avoid bankruptcy at all costs, and they see using assets, such as retirement savings, as an easy way to pay off debt. But this does not come without consequences. Taking money out of retirement accounts too early can have some negative tax implications. If you take money from a retirement account and are under the age of 59 ½, you can incur some tax penalties as a result, including a 10 percent early withdrawal penalty. Money should never be taken prematurely from your retirement accounts without first consulting a financial advisor and accountant.

If you are struggling to pay off debt, including credit cards, medical bills or personal loans, you should consult with an experienced bankruptcy attorney to discuss the real possibility that bankruptcy may be the best option for you. It is recommended that you consult these professionals before taking the money out of retirement accounts. 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.

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Bankruptcy Law, Credit Card Debt, Debt Relief, Timothy Kingcade Posts

How Debt Can Sabotage Your Retirement Plans

Posted on July 25, 2018by Admin

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.

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

How Student Loan Debt Can Affect Your 401K

Posted on May 14, 2018by Admin

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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Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

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

Posted on January 30, 2018by Admin

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).

Related Resources:

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