Just wondering. I also have a 401(k)And which code should be used?
Any retirement plan that qualifies for special tax treatment under the Internal Revenue Code, including a 457 deferred compensation plan, is going to be fully protected. The only exception to this general rule is in a situation where you have a debtor who, in contemplation of filing bankruptcy, moves their non-exempt property into their retirement accounts. Transactions like that can be reversed by the Trustee.
Also, since you have real estate, I would strongly recommend hiring an attorney. Many bankruptcy attorneys offer free consultations.
Though I cannot tell what the source of your 457 is, or its origins, I'll start with IRA's.
IRAs are exempt under either CCP §§ 703.140(b)(10)(E) or 704.115(a)(3). There is a "reasonably necessary" test that applies. See In re Moffat, 119 B.R. 201 (9th Cir BAP 1990).
CCP §703.140(b)(10)(E) allows “[a] payment under a stock bonus, pension, profit sharing, annuity, or similar plan or contract on account of illness, disability, death, age or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor”.
Courts have discretion to determine what is “reasonably necessary”. See Moffet's factor test: (1) the debtor’s present and anticipated living expenses and income; (2) the age and health of the debtor; (3) the debtor’s ability to work and make a living, including his/her training, skills and education; (4) the debtor’s ability to save for retirement; and (6) any special needs of the debtor and his/her dependents.
If a 457 qualifies as an IRA rather than an ERISA plan, then its only protected up to the amount reasonably necessary for the support of the debtor and dependent(s).
If it qualifies as an ERISA plan it may be exempt entirely under the bankruptcy exemption scheme. 11 USC Section 522(b)(3) allows debtors to exempt “retirement funds to the extent those funds are in a fund or account that is exempt from taxation under §§ 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” See also 26 U.S.C. §408(e)(1) “any individual retirement account is exempt from taxation under this section …” A debtor in bankruptcy may no longer be limited to the California exemptions and may independently claim the section 522(b)(3) exemption.
Under the existing statute, Congress intent appears to have been to preempt state exemption laws and to expand the protection for tax-favored retirement plans that may not have been protected under state law. Arguably the right to exempt retirement funds under section 522(b)(3)(C) now preempts state law, and therefore you get a more favorable exemption.
However under Clark v Rameker the US Supreme Court recently limited the exemption of inherited IRA's enjoy based on the fact that the source of the IRA or depending on if there is a 457 involved, the source of the funds. See link here:
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As indicated by other counsel, generally a tax exempt retirement plan is exempt through either set of exemptions. THe 401 k is also usually exempt with some qualifiers: when was if formed, how was it funded and how much is it and your other retirement?
Which exemption scheme you use may be determined by those latter questions. Hire an attorney to help you through the filing. Better a few bucks now, that potentially losing some or all of the 401k.
This response is not intended as legal advice. You may need to consult your own attorney to obtain a more specific answer.
I am in agreement with my colleagues. Unless special circumstances surround your 457 retirement plan. You should be able to protect all of your retirement accounts including your 401k under either bankruptcy exemptions. I would recommend seeking an experienced bankruptcy attorney to gather all the details to make sure all your accounts our protected.
The Bankruptcy Code Section 522(b)(3)(C) expressly allows exemption of retirement funds to the extent that they are exempt from taxation under IRC 457. This is in addition to the exemptions under state law that are available in addition to the 704 exemptions that CA debtors case use pursuant to 522(b)(3)(A).
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