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.