Keep Your Retirement Savings Protected from Lawsuits!

A lawsuit is a claim brought against you by the court of law, and is one of the most unpleasant things you can ever face. Lawsuits can range from anything like a broken leg in a pedestrian accident to someone hurting themselves on your property, and chances are that you will face one sometime in your life.

Ridiculous as this might seem, it is still a means for your assets to become vulnerable. Your retirement plans, savings and even the security of your home can be endangered, depending on the size of the lawsuit you are faced with. You need to know how to protect yourself and the money you have earned, especially when you are close to retiring.

While individual retirement plans are not safe from lawsuits, there is a different set of laws for each state. There are many states that leave the decision and future of your IRA savings to a court judge, while others have set rules about what will happen to it when you are sued.

• Supreme Court Ruling

  There was a court ruling in 2005 stating that conventional and Roth IRA assets will be protected and stay untouched by lawsuits. However, this left out a very important issue, when it stated that the assets will be shielded only to a certain extent and what might be thought of as ‘reasonably necessary’.

  The ruling allows that any amount not ‘reasonably necessary’ (to let the IRA owner support his/her family after retirement) is vulnerable to seizure.

• State Laws

  There are state laws that usually protect people from having everything they own taken away, e.g., judges cannot award the money people have saved in their retirement plans, because they would need it to pay bills.

  Certain states also have strict laws that control the amount paid through IRA plans after someone has filed for bankruptcy. Any amount which goes beyond that sum will be seized until such time as the court is satisfied. However, most states leave it for the judges to decide the allotted time, as they deem it necessary.

• Protection for IRA and 401(K) Retirement Plans

  There are employment sponsored plans like the 401(k), which are safe from lawsuits. The only two people who can make claims on the money are the owner of the 401(k) or IRA, and their spouse.

  The laws which protect IRAs are in place so that employees have some money to fall back on after their working days are over. Federal laws have given retirement plans some protection for the same reason.

• Other Considerations

  It’s important to note that you will still have to pay a 10% early withdrawal penalty if you dip into your plan when you’re under the age of 59.5, irrespective of whether it is for a lawsuit or not. Also, if you are 70.5 years of age and withdrawing from your IRA – you have to keep doing so. The required minimum IRA withdrawals will not change because of a lawsuit.