Have a Tax Question? Ask a Tax Expert
It sounds like this may be from a pension or retirement account.
If you are paid a lump sum form a tax deferred account (has not been taxed yet on the contributions) the distribution to you would be taxable unless you rolled it over to another tax deferred account (like an IRA).
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) exempts retirement plan assets from a debtor's bankruptcy estate if such assets are held by:
a. an Internal Revenue Code §401(a) tax-qualified retirement plan,
b. a section 403(b) plan,
c. a section 457 plan, or
d. an IRA (including traditional IRAs, Roth IRAs, SEPs and SIMPLEs) under §§408 or 408A. 11 USC §522(d)(12).
It is the debtor’s burden to show that the funds in a retirement plan account are qualified, not the creditor’s burden to prove that they are not.
I did not think it was canned. I really did not know yet what the lump sum was in relation to. I had to rely on my experience and did give you general info until you could come back and advise if this was retirement or not.
Is it retirement? You did not advise yet exactly what this is for.
You asked "Can I protect these funds from creditors?" All my info pointed to yes if this payment is from retirement.
Thank you for clarifying.
If you keep the money you would be taxed based on the amount (they may withhold 20% but that is not the end) you receive. You will need to file a tax return and report the distribution.
You will not have a penalty if you are classified as disabled.
All the assistance you are receiving will be impacted by this lump sum. The amounts you are receiving based on your low income will be recalculated and if this is a goodly amount you will not receive that assistance.
The disability is not yet effected as you have not been classified as disabled.