If you’re in a plan covered by ERISA (the Employee Retirement Income Security Act), you don’t have much to worry about. Your plan account is just about completely shielded from creditors – whether or not you’ve declared bankruptcy.
Even if your plan is not an ERISA plan, your funds are still safe if you’re in bankruptcy. That protection comes from the federal Bankruptcy Code. But the situation may be different if you owe money from a non-bankruptcy lawsuit. In that case, your ability to shield your plan dollars depends on the law of the state where you live.
Sometimes it’s hard to know whether you’re covered by an ERISA plan. You can check out the guidelines here.
What about IRAs? Your traditional and Roth IRAs are safe from creditors if you declare bankruptcy – but only up to an inflation-adjusted dollar limit (currently, $1,362,800). Outside of bankruptcy, your IRAs only receive whatever protection your state allows.
For a more detailed explanation of this issue, read this article on the Slott Report.
The above summary and the linked article are copyright © 2021, Ed Slott and Company, LLC Reprinted from The Slott Report, 20 Oct 2021, with permission. https://www.irahelp.com/slottreport/are-your-retirement-accounts-protected-creditors Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.