Q: Can bankruptcy creditors grab a debtor’s inherited 401(k) account?
A: No. In a recent case, a woman inherited a 401(k) from a friend and filed bankruptcy soon after. The bankruptcy trustee argued that an inherited 401(k) should be treated the same as an inherited IRA, which the Supreme Court ruled in 2014 is not exempt from the bankruptcy estate. A bankruptcy court in North Carolina recently disagreed, saying a 401(k) inherited from a non-spouse prior to bankruptcy is not property of the estate, in part because of the transfer restrictions under federal pension and retirement law. The plan states that the 401(k) can’t be reached by creditors, and account owners cannot pledge or assign it.
Q: I have a granddaughter who’s working this summer. Is it possible for me to contribute to a Roth IRA for her?
A: Yes, you can contribute up to $6,000 for 2021, but not more than the child’s 2021 earnings. Earnings grow tax-free inside the Roth.
If you go down this path, you have until April 18, 2022, to make this contribution. The pay-in counts toward your $15,000-per-donee gift tax exclusion ($30,000 if married).
This can provide a nice nest egg. And there are key tax advantages to Roths. Distributions after age 59 1/2 are nontaxable. Contributions can be pulled out free of tax at any time. And $10,000 of earnings can be taken out tax-free to buy a first house.
Q: I received a notice from my employer’s human resource department informing me that they received a suspicious-looking e-mail from our CEO requesting W-2 data about me and several other colleagues. They concluded it’s a scam and that there has been no breach of data. What’s going on?
A: A scam that targets payroll and human resource professionals is back. Fraudsters are sending out phony emails to payroll departments asking for W-2 data, a list of employees and more. The emails purport to be official correspondence from higher-ups in the firm or organization. The cybercriminals use the information they get for nefarious purposes, such as filing fraudulent tax returns claiming refunds.
Here are steps firms can take if a data theft related to the W-2 scam occurs: Let the Internal Revenue Service know of the data loss by email at firstname.lastname@example.org. Put “W2 data loss” in the subject line. Provide the business name, employer identification number, name and phone number of the contact person, summary of how the breach occurred and the number of employees affected. The IRS will then contact you by phone. Report the data theft to the police and FBI. And notify affected employees.