Some individuals considering bankruptcy will have accumulated savings in their work retirement accounts and often wonder whether that money is safe from their creditors.
As a Maryland bankruptcy lawyer, I know that Maryland individuals are entitled to an exemption known as the qualified plan exemption. This exemption covers any money or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan qualified under § 401(a), § 403(a), § 403(b), § 408, § 408A, § 414(d), or § 414(e) of the United States Internal Revenue Code.
Qualified plans breakdown into two categories: Defined contribution plans and defined benefit plans. IRS applies different rules to each. Defined contribution plans provide an individual account for each participant in the plan. A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan.
A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Money purchase pension plans are contributions to a money purchase pension plan are fixed and are not based on your business profits.
On the other hand, a defined benefit plan provides definitely determinable benefits to plan participants.
As a Maryland bankruptcy lawyer, I have helped clients with 401(a) accounts also known as money-purchase retirement savings plan which fall under the defined contribution plans. The plan is set up by an employer and allows for contributions by the employee, the employer, or both.
A 403a annuity is an annuity that can only be purchased through the workplace and is purchased with before taxed money.
My clients working at educational institutions and non-profits often have the 403(b) tax deferred plan available to them.
The plan most familiar with the public is the 401(K) utilized by private employers to offer retirement benefits to employees.
All these plans fall within the qualified exemption and individuals can protect an unlimited amount of money in those accounts. As a Maryland bankruptcy lawyer, I know that the only sure way to confirm a plan falls within the exemption is call the plan administrator. Plan administrators tend to be professional firms specializing in offering retirement and investment products. The Plan administrator is tasked with ensuring the plan meets the strict IRS guidelines required to maintain the qualified plan status and are best suited to confirm the status of a plan.
In conclusion Maryland resident considering bankruptcy can protect their retirement as long as the funds are invested in qualified retirement plans.
This is a general overview and is not meant as a comprehensive discussion. For this reason and others, it is always a good idea to speak with a knowledgeable Maryland bankruptcy lawyer to get answers specific to your situation.
Joseph K. Githuku
Maryland Bankruptcy Lawyer
Baltimore Bankruptcy Lawyer
Disclaimer: This article is provided for informational purposes only and should not be construed in any way as legal advice. This article does not create an attorney-client relationship.