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Consider Tax and Bankruptcy Issues before depleting IRA Accounts

I wanted to take the opportunity to discuss an issue that has come up in some recent consultations we’ve had with potential clients here at our office.
The issue relates to how people treat certain assets when they are in financial trouble.  I’ve seen a couple of instances of people coming in to the office to discuss bankruptcy. What was troubling about these discussions was that these people had started off with large retirement accounts – mostly IRA – but burned through them trying to keep a lifestyle through financial downtimes, paying a mortgage after losing a job or often propping up cash-flow negative rental properties. Unfortunately, when you withdraw from an IRA the amount is added to your income and you suffer a 10% penalty.
In several cases, the people I talked to took IRA accounts which are protected from creditors in bankruptcy, and turned them into huge non-dischargable tax liabilities. Before spending your retirement funds to “save” a house, especially one that is worth less than its mortgage, talk to your accountant or talk to us at no charge about your situation.

Posted in Bankruptcy.