Retirement Accounts

IF YOU FILE FOR bankruptcy, the money in your retirement accounts should be protected from creditors. For employer-sponsored plans, such as 401(k) or 403(b) plans, the amount is unlimited. For IRAs, the protected sum is increased every three years and, as of April 1, 2022, stands at $1,512,350. If you roll over money from an employer’s plan into an IRA, this money should remain fully protected and not count toward the $1,512,350. But as a precaution, keep your rollover IRA in a separate account from your regular IRA.

What if somebody slips on your sidewalk and successfully sues you? Again, employer-sponsored plans should be protected. But solo 401(k) plans and IRAs, including rollover IRAs, are at risk under federal law. There’s a good chance, however, that your state’s law provides protection. To find out the rules in your state, head to and scroll down.

There are a few caveats to bear in mind. First, your retirement accounts aren’t protected from the IRS if you owe federal taxes. Second, any money you withdraw from retirement accounts will no longer be protected, and creditors could seize it. Third, the Supreme Court ruled in 2014 that, if you file for bankruptcy, an inherited IRA isn’t protected from creditors, unless you inherited the money from your spouse.

Retirement accounts aren’t the only type of tax-sheltered account that’s potentially off-limits to creditors. In some states, money in cash-value life insurance, annuities and 529 college plans also enjoys creditor protection.

Next: Homestead Exemption

Previous: Step 3: Asset Protection

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