As Halloween goblins fade and we start to look at what we have left to do this calendar year, one thing our Boston bankruptcy clients ask after we inform them that they can protect their IRAs and 401ks in bankruptcy, is how they could or should invest their retirement savings.

First and foremost, we want to remind folks that these funds were designed by Congress as retirement vehicles. The reason they are tax deferred is to encourage investments NOW for taxable withdrawals LATER during retirement. They were not designed as savings accounts for cars, boats, horses or houses. Sure, some 401k plans allow for loans, however, those loans should only be taken out very cautiously. Furthermore, if the loan is not paid back before you leave or are discharged, there is an immediate payback requirement in most programs; if you can’t pay it back, you will owe taxes and penalties.
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Many of our Massachusetts bankruptcy clients ask us what will happen to their 401k accounts if they file for bankruptcy protection and a fresh start in Massachusetts.
 
The simple answer is that the bankruptcy law protects those monies. Whether you have $10,000 or $100,000, or millions, like a famous political candidate, it’s all protected from your creditors if you file a bankruptcy in Massachusetts.
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As we enter the final weeks of the calendar year we post this blog article to inform Massachusetts consumers of a few things they can do to reduce taxes and keep their retirements accounts active.
 
Tax planning basically involves two things: deferring income and reducing taxable income. Deferring income may seem counter intuitive, but it can reduce your taxable income this year. Defer income to 2012 if you can; any year-end bonus that you are entitled to could be requested or given in January. Thus, you will not be required to pay the tax until 2012.
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Massachusetts will join some 42 other states and allow us to dictate, in a will, a trust for the care of your pets. On April 7, Massachusetts’s law will include An Act Relative to Trusts for the Care of Animals. The law finally allows you to leave money and care instructions for your pets in your will. You can set up a trust similar to one you would to provide a college fund for a child or a special needs trust for an incapacitated adult. Boston attorney Neil Burns will draft wills for clients to include an Animal Trust. 
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Retirement accounts held by Massachusetts consumers, including the IRAs, Roth IRA, 401ks and 403b plans, are critical for our long term financial security in this day and age. Retirement accounts are protected from creditors and in Massachusetts bankruptcy.
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Our Massachusetts bankruptcy clients often ask how to get their financial house in order. Many clients have a 401k or other retirement plan. Others may be completing a bankruptcy discharge and are looking for a life after bankruptcy. Whether you are coming off a Massachusetts bankruptcy or simply refocusing on your financial situation, we’ve put together some initial rules of thumb with some good links to aid our clients and friends.
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The New Year has closed some doors for 401k and other retirement account owners. But lots of retirement plan options remain. If you haven’t made deposits into a work sponsored 401k plan for 2010, your time is indeed up. (But this could be a wonderful time to get started for 2011!) On the other hand, if you have income in 2010, you have until April 18, 2011 to establish and fund a SEP IRA, for 2010. This will lower your taxable income for 2010 and, moreover, give you a tax-deferred account that can grow until retirement. All of these retirement vehicles would be protected in bankruptcy.
The SEP IRA allows you to contribute up to 20% of your net income (minus half of your self employment tax) up to 49,000 in 2010.
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Many of our Massachusetts bankruptcy clients have loans against their 401k plans. Our clients often ask if 401k loans are reported to credit reporting agencies. Fortunately, 401k loans are not reported because they are not loans from a bank or lending institution.
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Many of our Massachusetts bankruptcy clients are able to protect significant retirement assets in their retirement accounts. As such, we remind our clients of the various options they have before year end. You can get a good chart on what qualifies for retirement deductions in 2010 by clicking here. We work with bankruptcy and post bankruptcy clients to protect their assets legally.
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