Many of our Massachusetts bankruptcy clients have retirement accounts, including IRA’s, ROTH IRA’s and 401k’s. These monies can be protected in a personal bankruptcy. However, in order to make them effective for retirement and financial planning, our clients need to know how to manage their portfolio. Many have bond mutual funds in their retirement accounts. What percentage of the retirement monies should be in bonds? For the answer to this, see our article entitled Long Term Investment Strategies for Retirement What bond fund to buy and how do you manage those bond funds?
There are three things to know before buying a bond mutual fund. First, what kinds of bonds are in the fund? There is a multiplicity of bond types; federal, state, municipal, mortgage backed, corporate, international, etc. Retirement accounts generally give you a few options, and you should learn what they are.
Second, what is the rate paid by the bond? If you buy a thirty (30)-year bond at 4%, and the issuer does not default, you will get 4% per year on that bond. However, you wont get your money back for 30 years. The same is true with shorter-term bonds. Inflation will eat away at the value of that money. If you sell the bond, the price someone will be willing to pay would be a function of interest rates: if they go down, the bond is more desirable; if rates go up, the bond is less desirable. A bond mutual fund moves in the same direction, but you cant hold on to the single bond, so you ride the interest rates.
Third, what is the duration of the bond fund? Duration is a calculation that factors in the due dates of the bonds in the fund, the expected cash flow from the various bonds (the interest), and the likelihood of prepayment, based on the type of bonds and the current and expected interest rates. The number is helpful because if the duration of a bond fund is calculated to be 5, for example, the value of the fund will go down 5% for every one percent the interest rates go up; and it will go down 5% for every one percent that interest rates go down.
Bond Mutual Funds in Retirement Accounts in Bankruptcy
Most retirement accounts are protected in federal bankruptcy. This is regardless of whether the monies are in a bond mutual fund or a stock mutual fund.
Before filing for personal bankruptcy, meeting with an experienced bankruptcy lawyer may save you money and enhance your retirement account. We have found that many people come to us after they have depleted some or all of their retirement savings in order to pay debt. The taxes and penalties on retirement account withdrawals can be significant. And they may not be necessary.
Bankruptcy Planning Is Important
Meeting with an experienced bankruptcy lawyer could help you make decisions that can save you considerable retirement savings. For example, monies that are reachable by debt collectors may qualify for retirement accounts. Further, monies that debt collectors tell you to turn over, or would be court ordered to turn over if they brought you to court, are protected if they are in retirement accounts.
Retain an experienced bankruptcy lawyer and protect your hard earned retirement assets. Attorney Neil Burns can help you plan for a bankruptcy. Call 617-227-7423 for a free consultation.