April 2005©
By Marc Singer & Neil Sosler
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is currently making its way through Congress. Since physicians have been forced to reduce malpractice insurance coverage or go bare due to skyrocketing insurance premiums, they have relied on Florida’s very liberal asset protection laws to protect their personal assets from excessive judgments. As the new law reads now, there could be severe restrictions on what type of investments will be exempt, or safe, in a bankruptcy hearing.
Will Your Retirement Accounts Continue To Be Safe If You File For Bankruptcy?
Bankruptcy has become the ultimate threat to plaintiff attorneys. However, before threatening bankruptcy, a physician’s assets must be well protected. Over the past few years, any sound strategy used retirement accounts such as IRAs, Pension Plans and Profit Sharing Plans as a foundation for saving assets in a physician’s name. Until now, any one of these would have provided an unlimited amount of protection.
If the new law under consideration passes in its present form, IRAs will be limited to $1 million. This could affect many physicians who built up large IRAs when contributions were not as restrictive as they are today and physicians who rolled over their pension and profit sharing plans into rollover IRAs. This limitation also would apply to Roth IRAs, SEP IRAs and Simple-IRAs. It seems that pension and profit sharing plans would continue to benefit from unlimited protection under the new law.
Under the new bankruptcy law, IRAs will be limited to
$1 million of protection.
What Can Be Done To Protect Assets In An IRA?
It is important to understand that IRAs will continue to be protected under Florida law. It is only in a Federal Bankruptcy court that excess funds could be at risk. There are several options a physician can use to protect the assets in an IRA that are in excess of $1 million.
The first option is to purchase annuities inside the IRA. A portion of the tax code under section 401(b) allows for Individual Retirement Annuities (the same acronym as IRA) These special annuities should continue to be protected under Florida’s laws because they end up effectively having a double protection, IRA and Annuity. Even if the IRA protection is penetrated, the annuity protection should hold up. This strategy is cost effective and fairly easy to implement. We recommend only no-load, no-surrender charge annuities be utilized.
The second method that could be used would be to move the assets in an IRA into a pension or profit sharing plan. It may be possible to establish a new plan without requirements to continue funding it. This would be effective if the new law upholds the unlimited protection of these plans. The cost to setup a new pension or profit sharing plan should be under $3,000. Ongoing administration could cost as little as $1,500 per year.
Conclusion:
The new law has far reaching consequences for physicians in Florida. Physicians should review their investment and asset protection plans and consult their financial advisor now in order to prepare for the coming changes in the Bankruptcy code.
Singer Xenos is an established wealth management firm specializing in physicians with $500,000-plus in investments. We manage over $500 million in assets such as retirement plans, annuities and personal accounts, with an emphasis on wealth building and protection from malpractice claims. Both Worth Magazine and Medical Economics named Singer Xenos one of the Top Financial Advisors nationally for physicians. Physician Asset Advisor and Singer Xenos do not provide legal advice.
Coral gables / Ft Lauderdale / Tampa / orlando 888.289.0060
