Bankruptcy Planning – Last Chance To Put Away Retirement Monies for 2011
One option for folks filing a Massachusetts bankruptcy who have slightly too much cash is to consider putting money into a retirement account. This is a legitimate way to protect your assets, as the bankruptcy laws allow you to have significant assets in such things as a home, under the Massachusetts Homestead Act, and ERISA protected retirement accounts.
Those retirement accounts include Individual Retirement Accounts (IRAs), Roth IRAs, 401ks and 403bs. IRAs allow you to protect up to $5,000 per year, or $6,000 if you are over 50 years old. You have until April 17, 2012 to make a 2011 contribution. If you have a work retirement plan, such as a 401k, there is an income phase out. If you are sheltering money from a personal bankruptcy in Massachusetts, you can also contribute for 2012 up until April 2013. The limits for Roth IRA’s are the same, however, the work retirement plan phase out income levels are different.
There is also the SIMPLE IRA, which allows contributions up to $11,500, or $14,000 if you are over 50. However, SIMPLE IRA plans must have been established by October 1. 401k contribution plans, established before December 31, have limits of $16,500 or 22,000 if you are over 50. The number goes up by $500.
Retirement accounts allow you to invest for the long term using various methodologies. Mainly, dollar cost averaging. This method means putting away a fixed amount of “dollars” on a regular basis. This investing technique will protect you from trying to outsmart the Wall Street geniuses by timing the market. When the stock market goes up, your equity investments go up; conversely, when the market goes down, you continue to invest and you are “buying low.”
This is considered an excellent strategy for decreasing your average share price. Work based 401k plans make this type of systemic investing easier; the employer takes out a small percentage of your salary, and put it into a tax deferred 401k account. Invested periodically in a retirement account by your employer, or on your own in an IRA before the tax deadline, you have systematically invested in American capitalism. And it’s tax deferred, meaning you do not pay taxes on that income now, but you will pay income tax on it when you withdraw it.
The exception to the above tax rule is the Roth IRA. In a Roth, you pay the tax now, invest the monies in the Roth, and withdrawals are tax-free. The advantage, of course, is that if the monies are invested wisely, and they go up, you have a significant taxable advantage. We encourage bankruptcy and trust account clients to utilize the Roth IRA whenever they can. Using the technique of dollar cost averaging combined with compound interest, the “most powerful force in the universe” according to Albert Einstein, you are guaranteed riches. Well, not guaranteed. However, over time, hard evidence proves Einstein’s declaration over and over.
If you have questions on whether you can file bankruptcy, call an experienced Massachusetts bankrtupcty attorney: Attorney Neil Burns, at 617-227-7423.