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MANY PEOPLE FOCUS on building wealth through asset allocation and investment choices. Far fewer think about asset protection. In my opinion, protecting wealth is just as important as building it, especially since decades of disciplined saving and investing can be undone in one unfortunate event.
In this article, I wanted to discuss some of the strategies and tips that I’ve learned, and implemented in my personal finance journey.
Quick disclaimer: I’m not a lawyer, and this is just my personal interpretation of various federal and state laws. Asset protection rules can vary significantly by state and individual circumstances. Please consult a qualified attorney.
401(k) / 403(b) Plans
Investing in a 401(k) or 403(b) plan is one of the strongest and simplest ways to protect your assets.
These plans are governed by the Employee Retirement Income Security Act (ERISA), which provides amazing protection against creditor judgments. ERISA protection applies nationwide, regardless of state law, and generally protects it from lawsuits, creditor claims, and bankruptcy.
Most 403(b) plans are also covered under ERISA, although there are important exceptions. For example, some 403(b) plans sponsored by churches or religious organizations may not receive ERISA protection. It’s best to confirm if your plan qualifies with HR.
Because of this protection, maxing contributions to a 401(k) or ERISA-covered 403(b) isn’t just a smart tax arbitrage or a wealth building strategy. It’s also a powerful asset protection strategy.
Rollover IRA
If you leave your job and roll your 401(k) or 403(b) into a rollover IRA, asset protection becomes more nuanced.
At the federal bankruptcy level, rollover IRAs funded exclusively with ERISA plan assets generally receive unlimited protection.
Outside of bankruptcy (e.g. during a lawsuit), creditor protection for IRAs is governed by state law. Some states provide unlimited protection for IRAs, while others impose dollar caps or offer limited protection depending on the nature of the claim.
If you have both a rollover IRA and an active 401(k), it’s often recommended to roll the rollover IRA back into the 401(k) when possible. Doing so restores full ERISA protection, which is typically stronger than state-law IRA protections.
However, something to keep in mind is that if your 401(k) plan has poor investment options or high expense ratios, the tradeoff may not be worth it. Rolling a rollover IRA into a 401(k) can also be good for those planning to use the Backdoor Roth IRA strategy, since pre-tax IRA balances become complicated due to “pro-rata rule”
Traditional IRA / Roth IRA
For situations other than bankruptcy, protection of Traditional IRAs and Roth IRAs from creditor judgments is determined primarily by state law.
This means the level of protection can be extremely different depending on your residence.
At the federal level, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 provides an exemption for Traditional and Roth IRAs up to $1 million, adjusted for inflation (~$1.7 million in 2026). Amounts above this threshold may be exposed in bankruptcy.
It’s also important to distinguish between:
These are typically treated differently under the law, and maintaining separate accounts for rollovers versus contributions can help preserve protections.
In general, even protected retirement accounts can still be accessed for:
Primary Residence
Many states offer a homestead exemption, which protects some or all of the equity in your primary residence from creditors.
The scope of this protection varies by state. Some states offer unlimited homestead exemptions, meaning there is no dollar cap on the amount of equity that can be protected. These include:
> Arkansas
> Florida
> Iowa
> Kansas
> Oklahoma
> South Dakota
> Texas
In these states, individuals can potentially protect wealth by holding it in their primary residence. This is why many doctors buy bigger houses, as they have potentially higher liability.
Many other states have limits. California, for example, provides exemptions generally ranging from $300,000 to $600,000, based on county median home prices. Illinois offers a much smaller exemption, $50,000 per person (it was only $15,000 in 2025)
Because the homestead rules are state specific and can change, you have to understand your local exemption before relying on your home as an asset protection strategy.
Insurance
Insurance is one of the most overlooked, but effective, asset protection tools.
Beyond basic policies like auto, homeowners, or landlord insurance, umbrella insurance provides an extra layer of liability coverage. Umbrella policies typically kick in once underlying policy limits are exhausted and can cover a wide range of claims.
For relatively low annual premiums, umbrella insurance can protect against large judgments.
More Complex Strategies
There are additional asset protection strategies, but they are more complex and often require legal and tax guidance.
1. LLCs
If you own a business or rental property with liability risk, forming an LLC can help isolate that risk from your personal assets. However, you have to set it up correctly and comply with LLC regulations. Failure to maintain separation between personal and business finances can lead to “piercing the veil,” potentially eliminating the protection.
2. Irrevocable Trusts
Assets transferred into the irrevocable trust don’t belong to you personally, which can provide strong creditor protection. Your family or other beneficiaries can benefit from the trust, but you give up control and ownership of the assets.
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
Thanks Bogdan
Appreciate your articles and insights sir.
Curious if you know anything about brokerage account asset protections policies and techniques?
I launched a consulting business after leaving my federal job recently. Umbrella coverage was a must. My local insurer (car, house) didn’t offer a competitive policy, but national insurers did. Cost of the new business.
Thanks for this one, Bogdan.
I wish that all residential property managers required tenants to purchase rental insurance. It’s so sad when there’s an apartment fire, and a go-fund-me page has to be set up for the victims. Years ago I bought rental insurance, the multi-policy discount it created was actually larger than the premium for the policy. Rental insurance covers far more than just your ‘stuff’, the coverage protects you from incidents outside the unit as well. It’s crazy not to have it.
Regarding my umbrella policy, the premium is only $200/year. It’s important for anyone with a positive net worth. Insurance protects your assets just as much, or more, than it protects you.
Thank you, very informative and helpful!
Thanks. Very important information.
Let me add some other considerations in support of the loss avoidence and cost saving “extended warranty” you may get by retaining assets from ERISA fiduciary protections that are part of your 401k or 403b plan.
An excerpt from my Fall 2018 Plan Sponsor Council of America DC Insights Leadership Letter (I did not update it):
“I never buy the extended warranty on a product, except …
(long) ago, a Japanese insurance executive asked me whether I felt responsible for workers who made mistakes or failed to take full advantage
of our 401(k) plan. Back then, I felt comfortable asserting that workers were
responsible for their own decisions. Since then, behavioral economics
studies, litigation, legislative and regulatory changes “moved the goalposts”
— prompting me to add automatic features and installment payments
and to encourage “asset retention.”
…
In 1985, my plan design actually encouraged payout at separation.
Today, 30 percent of all plan participants are former employees, with
more than 30 percent of all plan assets, approximately $1.5 Billion! Today, the account is automatically continued after separation so participants can aggregate/consolidate their retirement savings. The “default” payout is annual installments commencing at the required beginning date as minimum required distributions. My spouse Debbie and I expect to be lifetime participants. (Assuming normal life expectancy, between us and our surviving children, we will have been participants in that plan from 1989 to 2055 or so – 65+ years).
(in my plan sponsor role), and now solely as a participant in my plan, these fiduciary protections and design defaults serve as a valuable “extended warranty.”
The value almost always exceeds the cost, (especially when you count losses and expenses avoided) because:
• Separated participants are already very familiar with the plan, a few
have 50 plus years of experience,
• There are about 50,000 participants with about $5 Billion, many have a
lifetime of savings and watch fiduciaries very closely,
• There is a guaranteed investment contract paying approximately
3 percent,
• Separated participants can access money on demand — either as a
withdrawal or as a loan, and
• Administrative and investment costs are very low due to plan design and
economies of scale.
Many retirees lack the expertise to manage a lifetime of savings. “(M)any
older respondents are not financially sophisticated: they fail to grasp
essential aspects of risk diversification, asset valuation, portfolio choice, and
investment fees” (A. Lusardi, O. Mitchell, V. Curto). “The prevalence of dementia explodes after age 60 … the diagnosis of cognitive impairment
without dementia is nearly 30 percent between ages 80 and 89. … in studying financial mistakes (suboptimal use of credit card balance transfers,
mis-estimation of the value of one’s house, excess interest rate and fee
payments), (we) find that financial mistakes follow a U-shaped pattern,
with cost-minimizing performance occurring around age 53” (S. Agarwal,
J. Driscoll, X. Gabaix, D. Laibson).
Retirees may also be financially vulnerable (M. Lachs, S. D. Han).
So, upon reaching age 70½, 18 plus years after one estimate of peak financial cognitive capability (S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson),
we require retirees to make a payout decision regarding a lifetime of retirement savings.
Perhaps unknown to most participants, the “extended warranty’s” best
value may be the fiduciary protections and design defaults. Fiduciaries are
often “prudent experts.” They are required to act solely in the best
interest of participants, to carefully select and monitor the investments
and the administrators.
Importantly, a plan’s “extended warranty” may be even more valuable
throughout participants’ retirement/payout years.
See also: https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2020-considerations-for-recognizing-and-addressing-participants-with-diminished-capacity