Supreme Court: Creditors can't seize IRAs (or Social Security); Another reason low-income workers should support Social Security Reform
Re: Supreme Court: Creditors Can't Seize IRAs
The Supreme Court ruled today that bankruptcy protection extends to Individual Retirement Accounts, giving IRAs the same protection already afforded to Social Security Benefits and 401(k) accounts.
The issue was that since it is possible to withdraw from IRAs before retirement age some creditors argued that IRAs should not receive the same type of protection as other retirement accounts. The Court noted that the penalty for early withdrawal was large and that few people under the age of 60 took early withdrawals, demonstrating that in theory and practice IRAs do work as benefits based on age.
My first thoughts upon hearing the ruling were not about IRAs though, since I don't have one. (I'm self-employed so I have a different retirement account structure.)
Here was my train of thought:
- Social Security benefits and "accounts" (that don't really exist now) are protected in bankruptcy.
- Low-income workers are more likely to file for bankruptcy than higher-income workers.
- Low-income workers generally can not save enough to have IRAs or 401(k) accounts.
- Therefore, personal Social Security accounts give low-income workers a new ability to invest in stocks or bonds AND to have those investments protected during bankruptcy, a protection many market investors today do not have (or at least have only with the portion of their investments that is in retirement accounts.)
So, which would you rather have: A) The current system where returns are tiny and your benefits are at risk due to the bankruptcy of Social Security itself, or B) Personal accounts where you can get higher returns (with potentially less economic risk and much less political risk) with protection if you must file for bankruptcy yourself?
Today's ruling, although not about Social Security, highlights yet another excellent reason for low-income workers to support voluntary personal retirement accounts being funded with a part of their payroll taxes.
The more I think about it, the less excuse there is for any objective analysis to come down against personal accounts. And the more certain I am that the major forces against Social Security reform are all about power politics (i.e. government's addiction to spending and the incestuous relationship between unions and the Democrats) and nothing about benefitting citizens of any economic class.
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