Money Double-Exempt in 401K

December 19, 2007 2:59 pm Published by

Money in 40lK retirement plans is exempt in two ways. First, the account is tax exempt while it accumulates for retirement. Then, under federal bankruptcy law, 401K is exempt from creditors. In fact, Indiana bankruptcy law protects all kinds of employer retirement plans from creditors. Under the newest law, (which I helped write, by the way!) even
Individual Retirement Accounts are protected.  That’s because all these accounts are meant to help provide financial security in people’s later years. 

All the more reason to pay attention to your retirement account and how it’s invested. I caught a recent CNN story about a current case in the Supreme Court that has to do with a 401k account. It seems the participant in the 401K, James, called the plan administrator’s office back in 2000 to request that his money be moved out of the stock market and into safer investments. The administrator made a mistake and didn’t make the change, resulting in a big loss to the investor when the market dropped sharply later that year.

Whatever the Supreme Court ruling turns out to be on that case, CNN point out that most people don’t even notice how their retirement accounts are doing.  That means many, many 401K participants could have saved themselves from the worst effects of the stock market drop by diversifying their portfolios.

As an Indiana bankruptcy attorney, I see a real message in James’ sad story.  Bankruptcy gives citizens a chance to make a fresh financial start.  One crucially important part of that new start is simply getting in the habit of paying attention to your own financial affairs. That way, whenever you sense things going a little bit off course, you can get back on track as quickly as possible, and continue on the path to financial security.

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This post was written by Mark Zuckerberg

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