Distribution... protection?

[K-t-F]

Client is closing a plan because he is joining a larger medical practice. He doesnt like the investment choices he will have in the new plan and has asked where can he put his $ and still protect it. If he opens a plan and is the only participant he is not protected under ERISA... what are his options. IRAs are subject to litigation... what to do

Thanks!

[Guest b2kates]

you do not say what state the client is in. There are many states that provide protection for IRAs.

[K-t-F]

Massachusetts

[Guest mjb]

If he establishes a qualfied plan all of the assets are exempt from creditors under ERISA including bankruptcy. If he rolls over his Q plan assets to an IRA or SEP the assets are exempt from creditors in bankruptcy and may be exempt from other creditors under state law. He could rollover the assets to a 0% money purchase plan and get all of the protections from creditors that are available under a Qual plan.

[Guest b2kates]

In Massachusetts, IRA’s and non-qualified retirement plans are

generally exempt (some exposure to recent excess contributions

[K-t-F]

Ok, It was my understanding that a one man show plan is not protected from creditors or a lawsuit. He is a vascular surgeon... wants to protect his $$. He can very easily establish a plan... does it have to be a MP? Could it be a PS? AND, the benefit would be 2 415 limits since he will have his own plan as a sole proprietor and from the group he is joining (he will not own much if any part of the new entity)

Am I getting two thumbs up on that plan of attack?

Thanks!

[Nate X]

Even though he is joining a larger medical practice, I would think he would have some say in possibly getting Self-Directed Accounts added to their plan. I’m not aware of any exceptions that will allow him Title 1 protection in any qualified plan he would establish for just himself.

Depending on the circumstances of his old plan, he may want to keep that plan alive as an alternative.

[K-t-F]

He could add accounts... but it is where the $$ is that is the issue. He uses an advisor and is very happy. He wants to keep the $$ with him but at the new plan that is not possible. He wants to roll his $$ out of his existing practice's plan and into some retirement vehicle where he is protected and at the same time can invest with his financial guru.

In a one person plan there is no Title 1 protection is there... If he kept the old plan alive he would need a sponsor to sponsor the plan. His business is going away... no sponsor. Once the plan sponsor is gone he has 12 months to liquidate. Am I mistaken? even if he kept the plan alive, he would be the only participant.

suggestions?

[Guest mjb]

The bankruptcy law was amended last year to protect all employer sponsored plans (401(a), 403(b), seps, simples, 457s) from creditors in bankruptcy regardless of whether the plans are subject to ERISA. Assets in qualified plans can be protected from general creditors under the nonalienation provisions of the IRC which are regarded as the creation of a spendthrift trust under state law which will protect assets from creditors. Some states, (NY,NJ) have laws that expressly protect all qualified plans/IRAs from general creditors. He can establish any type of Q plan. I suggested a MP plan because he would not have to make any employer contributions to a 0% MP plan and only a token after tax employee contribution. If state law protects IRA assets from creditors then he can rollover the funds to an IRA and be protected from both bankruptcy creditors and general creditors.

[K-t-F]

That is good news... so, if he has a consulting gig as a surgeon then he can establish the plan under that and be his own sponsor.

In your example he is not being protected by Title 1 but rather through IRS protection as you have mentioned.

I certainly value everyone's opinion... any thoughts for this Massachusetts Doctor?