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.
We have seen too many folks file for personal bankruptcy after using their retirement account to pay for some of their debt, only to find out that they ran out of retirement monies, but there is still debt. These folks sometimes owe the taxes and penalties which are not easily discharged. Had they come to a personal bankruptcy lawyer ahead of time, we could have undertaken bankruptcy planning and likely saved the whole retirement account, protected it in bankruptcy, and discharged all of the debts.