Found the Roth IRA X Factor

[HHM]

@HHM: So the OP can place $5,000 into a brand new Roth IRA (with no history of ever having done this before) on the eve of filing a Chapter 13 and it won't be considered bad faith by the Trustee?

Mostly, yes. The person first needs to be eligible to open the IRA, which means the person must have "earned income" (e.g. wages). That little nugget has caused problems for the unemployed or retired debtor filing bankruptcy that have cash on hand, the person puts the funds in an IRA, and the trustee is able to undue the transfer because the unemployed person was not eligible to open an IRA.

However, Pre-bankruptcy exemption planning is OKAY. The leading opinions on the issue tend to favor the debtor and hold that the mere act of converting non-exempt funds into exempt funds, by itself, is not evidence of fraud (evidence of an intent to hinder, delay, or defraud creditors). The courts want to see more evidence of fraud. For example, if the person opened an IRA, put $20,000 into it, the IRA is in an off shore bank, and the debtor failed to disclose the account on the petition (but was later discovered) that would be fraud.

[ValleYum]

@HHM: So the OP can place $5,000 into a brand new Roth IRA (with no history of ever having done this before) on the eve of filing a Chapter 13 and it won't be considered bad faith by the Trustee?

@eltaur2000: Wow. The poster you are being all snarky towards merely invoked her Constitutional right to file bankruptcy. By the way, it is the very same right you are currently considering the use of.

While we may not agree with everything others say on this forum, when those of us who use our personal time to try to help others see posts that concern us - whether it be about an exemption, preparedness to file or yes, a pre-BK trip to Vegas - we give opinons. What you need to remember is the opinions and advice given is done with the hopes that it helps another person. It may not be what one wants to hear but it may be exactly what one needs to hear.

Quite simply, by virtue of posting here, we are all in the same glass house of debt - yourself included. No one should be throwing stones at the people who are simply trying to understand and/or help.

Not everything being said to you is a direct attack on you but your 'sensitivity phasers' are set to stun and you seem (from prior posts) to get all rage-face when you get an answer that isn't to your liking. Just saying. Because not only is having all that anger not healthy; it tends to make others not want to help the angry person.

[HHM]

This isn't exactly news? But thank you for posting.

However, there is a 10% early withdrawal penalty if you remove funds from a Roth IRA unless certain exceptions apply.

[eltaur2000]

I found a way to legally protect cash before filling chapter 13th. It will be max $5,000 but that is technically all I will have.

You can open a Roth IRA at Fidelity or Vanguard and fund the account with the max of $5,000. It will not count for the liquidation test because it's exempt.

You can withdraw the amount YOU contributed penalty free anytime. I'm assuming if you have this cash in a Savings or Checking you would have already paid taxes. The max you can deposit for year is $5,000.

Instead of playing poor me and criticizing other people in the forum I want to share useful information. Or telling people they need to read better let me give you useful information.

You can save your cushion in a Roth and not have it used for the liquidation test.