Massachusetts Consumers Year End Retirement Notions; Bankruptcy Protection
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.
The following are a variety of ideas; however, you must talk to a tax professional before undertaking a specific plan of action. Also, be aware that you cannot generally combine these various plans, and, when you can, there are personal, and family, income limits.
Roth IRA Conversions: In 2010, if your income is under a certain limit, you can convert all or part of y our IRA into a Roth IRA. Be careful, this is a taxable event and you should seek tax advice before doing so. However, it is a good idea to consider this, especially if your account is down, due to the market, and, and this part is especially important, if you have outside monies to pay the tax. All too often we get clients who converted, or withdrew, IRA monies, and failed to pay the tax. That tax is generally not discharged in bankruptcy.
Roth IRA Recharacterizations: You may also undo a Roth Conversion in 2010. This is also something you would want to speak to your tax professional about, but it is useful if you converted and have to pay the tax, and now, if it was in the market and has down significantly, you would be paying a higher tax than you thought, you can simply convert it back. Or, you should consider undoing the Roth if you simply don’t have the funds to pay the taxes and don’t need the conversion. Either way, the Roth or IRA should be protected in a bankruptcy.
Roth 401K – The maximum allowed contribution for 2010 is $5,000, with a $1,000 catch up provision for folks over 50. Roth 401K plans work similarly to the above. Many companies now have Roth 401k options. Be careful when setting this up, however, because the monies that go into the Roth 401k portion of the 401k are put in with after tax dollars. Thus, like a Roth IRA, they are protected from taxes upon withdrawal, but do not lower your taxable income in the year they went in.
401k and 457b plans – The maximum allowed for a 401k or 457b plan in 2010 is $16,500. There is a catch-up provision of an additional $5,000 for those over 50.
These are employer plans, protected in bankruptcy, but it may be too late to add significant monies to them now; it is not, however, too late to plan for next year, and try to maximize them for two reasons. First, they monies that go in are pre tax dollars, thus reducing your tax bill. Second, there is often a match from your employer, thereby giving you 100% return on your investment the minute you put it in!
IRA Accounts: You may $5,000 with a $1,000 catch up provision. These are also protected in bankruptcy.
SIMPLE IRA and SIMPLE 401k accounts – $11,500, with a $2,500 catch-up provision. These are protected in bankruptcy.
All of the above plans should be in effect in 2011 and we urge our clients to consider planning for regular payments into their plan, beginning at the start of the year.