How to Keep Assets Safe from Creditors with an Annuity

How to Keep Assets Safe from Creditors with an Annuity

In a perfect retirement, all debts, including mortgages, would be paid off and savings would provide a comfortable lifestyle for as long as you live. Life, however, doesn’t always work out the way we plan. Thankfully, there are ways to protect hard-earned savings to ensure you have a reliable income during retirement. One strategy to explore is how to keep assets safe from creditors with an annuity.

Planning Ahead is Critical

You can’t protect your money by shifting it into a retirement account after you’ve already been sued or when you know that bankruptcy or litigation is imminent. Courts and regulators will sniff out this type of abusive transfer immediately and impose severe penalties. You must be able to show that asset protection has been part of the plan all along and wasn’t undertaken in reaction to some financial threat that just appeared on the horizon. This is why it’s critical to determine how you plan to protect retirement assets as far in advance as possible and never during a crisis or dispute with a creditor or potential litigant.

Get Advice About Applicable Law

Federal bankruptcy law protects a very limited amount of retirement savings held through an annuity or life insurance accounts. It extends some exemptions to funds from annuities due to death, disability, or length of service paid in amounts necessary for a debtor’s support. Exemptions for annuities held in retirement accounts subject to the Employee Retirement Income Security Act (ERISA) and IRAs are more generous.

State laws, however, vary widely, and only Texas and Florida provide a complete exemption for annuities. Other states impose dollar limits or have statutes that are aimed to protect creditors, not retirees. Always consult with a lawyer and accountant about the tax implications and asset protection provisions in your state for any annuity you are considering purchasing. A knowledgeable and experienced annuity broker can find you an annuity that would meet your current needs, but cannot advise you regarding legal implications.

Annuities should be a part of your retirement planning along with other kinds of assets designed to ensure a reliable income in retirement. Depending on the state you live in, annuities may help keep assets safe from creditors in the future if debts or unexpected litigation create new financial obligations.

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