Can a creditor seize my retirement savings?

By Matt Lee AAA
A:

Whether a creditor can seize your retirement savings will depend on the type of account in which you are holding your retirement savings and the creditor that is seeking repayment.

If your creditor is a government organization, such as the IRS, then none of your accounts, not even your 401(k) plan or your pension plan accounts, is protected. Although the IRS is unlikely be able to force these funds directly out of your account, it will be able to take all or a portion of any distributions you take from these accounts. On the other hand, your 401(k), IRAs and your pension plan funds are protected from general creditors to whom you may owe outstanding debts.

However, creditors can seize any of your retirement savings if you have named these financial assets as security for any loans you may have taken or if you have entered into bankruptcy. However, while in bankruptcy proceedings, there is still some protection against any creditors seizing all of your retirement assets. Assets held in registered retirement plans, such as IRAs, 401(k)s and pension plans, will likely be protected during bankruptcy proceedings, but this will depend on federal laws and the state laws that are applicable to you.

To prevent your creditors from seizing any of your retirement savings, you could be sure to maximize your eligible contributions to registered retirement accounts and to never name any retirement savings as security for a loan. If your funds are not in a registered retirement account, then these funds may be seizable during bankruptcy or collection processes.

To read more about what assets are protected during bankruptcy, read Bankruptcy Protection For Your Accounts and What You Need To Know About Bankruptcy.

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