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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37957
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I have a question about contributing to a Roth 401k while being

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I have a question about contributing to a Roth 401k while being in a Chapter 13 bankruptcy.

A C Corp can contribute to someone's 401k up to $33,500:

http://20somethingfinance.com/maximum-employer-401k-contribution/

A debtor in bankruptcy will be scrutinized for making large personal Roth 401k contributions, but what about his employer?
Suppose the debtor owns the C Corp. If the debtor owns the C Corp he could contribute $33,500 to his roth 401k through his corporation while not making any personal contributions. Of course, the C Corp has its own tax return to file, not part of the BK filing.

Would this strategy be considered gamesmanship or intelligent retirement planning for the chapter 13 debtor who also happens to own all the stock in his own business?
Hello again,

Assuming that the debtor was the sole shareholder of the corporation, the debtor could create or modify his/her retirement plan and contribute a large amount of assets to his/her retirement plan. But, the bankruptcy trustee could claim that the contribution is a fraudulent transfer, made to a self-settled trust under Bankr. Code 548(e).

Considering the amount involved, I doubt that the trustee would let this one go. There would be an adversary proceeding and the court would probably require that the funds be disgorged and returned to the corporation.

Hope this helps.
Customer: replied 3 years ago.

Read this for a good laugh:


http://www.forbes.com/sites/jayadkisson/2012/07/17/thomas-pre-bankruptcy-exemption-planning-survives-and-an-ira-is-a-self-settled-trust-or-similar-device/


 


I doubt a Utah judge would rule the same way though.


 


Now, for clarification-I'm talking about contributing during the middle of the Chapter 13 plan. How would the trustee even know about the employer's contribution in the middle of the chapter 13 plan?


 

Once a Chapter 13 plan is confirmed, all property revests in the debtor, which includes the debtor's ownership share of the corporation. So the contribution, and the decision to make the contribution is not a fraudulent transfer, because the plan already has determined the debtor's obligations to all creditors. As long as the debtor makes payments according to the plan, he/she can do whatever else he/she wishes.

Hope this helps.
Customer: replied 3 years ago.

So making the Roth 401k contribution before the case is filed or even up to the confirmation hearing would not be wise, but a day after the Chapter 13 plan is approved at the confirmation hearing everything is fine. Fair statement?

Fair statement.
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