What accounts are protected from creditors during bankruptcy?

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Q. My wife and I are 62 and have multiple retirement accounts. Which are exempted assets, that is, protected from creditors, if one of us filed for personal bankruptcy? Does it make a difference if we consolidate some retirement accounts and commingle the funds?
— Planning

A. Don’t make any moves with these accounts yet.

Most retirement accounts are exempt in bankruptcy.

“Thus, many individuals can file for bankruptcy, get rid of their debt and still have money for retirement,” said Karra Kingston, a bankruptcy attorney in Union City.

She said ERISA-qualified plans can be exempted in bankruptcy, including 401(k)s, 403(b)s, traditional, Roth, SEP and SIMPLE IRAs, Keoghs, profit sharing plans, money purchase plans and defined benefit plans.

For traditional and Roth IRAs, the limit is up to $1,362,800 per person, she said.

“I would advise not to commingle money or start doing anything without first speaking with a bankruptcy attorney first,” she said. “There may be no need to consolidate or commingle any money.”

Importantly, Kingston said, once you take funds out of a retirement account, they are no longer protected.

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This story was originally published on Aug. 18, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.