- Your mounting bills become too much handle
- You do not have sufficient regular income to pay those recurring bills
- Your savings account is empty
…it is only natural to consider paying those bills out of funds held in a retirement account – such as a pension, 401(k), 403(b) or IRA.
However, one should rarely consider tapping a retirement account to pay existing bills because all monies in an ERISA-qualified retirement account are exempt from creditor attachment. So, regardless of how much one owes to a creditor, and even if the creditor obtains a monetary judgment, the creditor cannot attach or obtain the judgment debtor’s money in a retirement account. One should never transfer protected money from a retirement account and transfer it into a non-retirement account which causes the funds to lose their protected character.
The better option in those cases? Consider filing bankruptcy; one can file bankruptcy and keep all of the money in an ERISA-qualified retirement no matter how large the retirement account.