Retirement Accounts and Bankruptcies

It’s common knowledge that 401(k)s, 403(b)s, IRAs, and HSAs are profoundly powerful tools to get you to your goal of retiring.  Perhaps what isn’t as well known is that these assets are protected from personal bankruptcies and lawsuits.

We have a tendency to think optimistically about never being exposed to bankruptcy or being sued.  And that tendency has merit; very few people ever file bankruptcy or are involved in a lawsuit.

But life has a way of throwing curve balls our way.

Events we never anticipated or are in our control occur (indeed, there are financial behaviors that result in most bankruptcies, but they also occur for those who simply find themselves in an extreme event).

Yet, there is a difference between anticipating an event and preparing for it financially.

Although the salient reason for retirement accounts continues to be their compelling income tax attributes, knowing they are protected from these events provides yet another reason to place these accounts at a very high, if not the highest, priority for your money.

You reward your future self by forming good habits around contributing to your retirement.  You buy, quite literally, peace of mind whose value cannot be overstated.

Limiting our exposure to these and other risks such as a health crisis or a divorce is paramount to staying on the path to meeting our financial goals.

This is the essence of a good financial plan: Aligning assets to financial goals and to mitigating risk.

I obviously am biased in saying that this is just another way in how working with a financial planner equips you for living your richest life.