Which Retirement Funds Are Protected From Creditors?

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1. Bankruptcy Explained: Types and How It Works
2. What You Need to Know
3. When to Declare Bankruptcy
4. These Debts Aren't Discharged
5. Should You File?

Types of Bankruptcy

1. Chapter 7
2. Chapter 9
3. Chapter 10
4. Chapter 11
5. Chapter 12
6. Chapter 13
7. Chapter 15
8. Chapter 7 vs. Chapter 11
9. Chapter 11 vs. Chapter 13

1. Why People Go Bankrupt
2. Prevent Bankruptcy
3. Don't File in Your 20s
4. Life After Bankruptcy
5. What Happens to Your Credit
6. Buying a House After Bankruptcy

1. Corporate Bankruptcy
2. Bankruptcy and Company Stock
3. Costs and Company Capital Structures
4. Shareholder Equity Under Chapt. 11
5. Profiting from Bankrupt Companies
6. Coming Back from Bankruptcy

Bankruptcy: Your Legal Rights

1. Bankruptcy Abuse Prevention and Consumer Protection Act
2. Protecting Assets from Creditors
3. Which Retirement Accounts Are Protected

Bankruptcy Terms (341/A-B)

1. 341 Meeting
2. Absolute Priority
3. Bankruptcy Court
4. Bankruptcy Discharge
5. Bankruptcy Financing
6. Bankruptcy Risk
7. Bankruptcy Trustee

Bankrupty Terms (C-I )

1. Cram-Up
2. Debt Discharge
3. Insolvency
4. Involuntary Bankruptcy

Bankrupty Terms (J-Z)

1. Nondischargeable Debt
2. Prepackaged Bankruptcy
3. Quick-Rinse Bankruptcy
4. Receiver
5. Technical Bankruptcy

Many assume their retirement funds are protected from creditors, but depending on the type of retirement account you have and the state where you live, this is not necessarily the case. The good news is that many employer-sponsored plans generally have the best protection. If you are concerned creditors might come calling, here is what you need to know.

Key Takeaways

• Most employer-sponsored retirement plans, such as a 401(k), fall under ERISA guidelines and are protected from creditors.
• Non-ERISA plans—such as traditional and Roth IRAs—typically do not have the same level of creditor protection, unless the funds were rolled over from an employer-sponsored plan, like a 401(k).
• These retirement assets are nonetheless protected under a federal bankruptcy law if you file for bankruptcy.

ERISA-Qualified Plans Offer the Best Protection

Retirement accounts that qualify under the Employee Retirement Income Security Act (ERISA) are generally protected from creditors, bankruptcy proceedings and civil lawsuits. Your retirement assets are not at risk if your employer declares bankruptcy. In addition, creditors to whom you owe money cannot make a claim against funds held in your retirement account.

To be ERISA-qualified, a retirement plan must be set up and maintained by your employer (and/or a separate employee organization) and comply with federal rules regarding reports to plan participants, funding and vesting. Common types of ERISA accounts include 401(k) plans, deferred compensation plans, pensions and profit-sharing plans.

In addition to employer-sponsored plans, ERISA may cover employee health and welfare benefit plans. Common ERISA-covered plans include:

• Medical, surgical, hospital (health maintenance organization (HMO) plans)
• Health reimbursement arrangements (HRAs)
• Health flexible spending accounts (FSAs)
• Dental and vision plans
• Prescription drug plans
• Disability insurance
• 419(a)(f)(6) and 419(e) welfare benefit plans

As with many employer-sponsored plans, the assets in these plans are exempt from seizure by any creditors. Take, for example, one important feature of an ERISA-qualified plan: the anti-alienation clause. This clause states that “benefits provided under the plan may not be assigned or alienated.”

Retirement funds in ERISA plans may not be safe from an ex-spouse or the Internal Revenue Service (IRS).

When ERISA Plans Are Vulnerable

ERISA-qualified plans may be at risk under certain circumstances and can be seized by:

• Your ex-spouse, under a qualified domestic relations order (QDRO), to the extent of your ex-spouse’s interest in the benefits as a marital asset or as part of child support
• The Internal Revenue Service (IRS), for federal income tax debts
• The federal government, for criminal fines and penalties
• Civil or criminal judgments, in cases of your own wrongdoing against the plan

Non-ERISA Plans Are Not Always Protected

Plans that are not ERISA-qualified do not offer the same level of protection when it comes to creditors, bankruptcy and lawsuits. Common types of non-ERISA retirement accounts include individual retirement accounts (IRAs) without substantial employer involvement, such as the traditional and Roth IRA. In addition, some types of 403(b) plans provided by government or churches may be exempt from ERISA.

Although IRAs are not ERISA-qualified, the funds are protected under a separate law—the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)—but only if you file for bankruptcy.

What Type of Accounts Are Protected From Creditors?

ERISA-qualified retirement plans are generally protected from creditors. These plans include 401(k)s, pensions, profit-sharing plans, and health and welfare benefit plans, including HRAs and FSAs.

Is My 401(k) Protected If I Get Sued?

In general, retirement plans that are covered by ERISA are protected from creditors—and their lawsuits. A 401(k) is an ERISA-qualified plan, so it is likely protected if you get sued. There may be a few exceptions, such as charges brought by the federal government or if you allegedly wronged the plan.

Can Debt Collectors Go After Retirement Accounts?

Though plans covered by ERISA—like 401(k)s—are protected, depending on the state in which you live, your IRA and other non-ERISA plans may, or may not, be protected from creditors. Some states, for example, shield IRAs in nearly all instances, while others offer only limited protection. If you are at risk of creditors pursuing you, speak to a local attorney who understands the nuances of your state. The laws can be complex.

The Bottom Line

The ultimate value of your retirement account depends on many factors, including how much you save each year, your time horizon and the performance of the investments. However, there’s something else that can undermine your retirement funds: creditors.

While many employer-sponsored retirement accounts—including most 401(k)s—are protected against creditors, that’s not always the case. If you have questions about your plan and whether or not it is ERISA-qualified, speak with the plan administrator.

1. Experian. "Are Retirement Accounts Protected From Lawsuits?"
2. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA." Page 13.
3. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA." Pages 1–2.
4. U.S. House of Representatives, Office of the Law Revision Counsel. "29 USC 1056: Form and Payment of Benefits."
5. Cornell Law School, Legal Information Institute. "26 CFR Sec. 1.401(a)-13 - Assignment or Alienation of Benefits."
6. U.S. Department of Labor. "FAQs About Qualified Domestic Relations Orders."
7. Internal Revenue Service. "5.11.6: Notice of Levy in Special Cases."
8. Equifax. "Can Creditors Go After My Retirement Accounts?"
9. Fordham Law Review. "The Fraud Exception to ERISA’s Anti-Alienation Provision: A Permissible Exercise of the Chancellor’s Powers?" Pages 835–837.
10. U.S. Government Printing Office. "Bankruptcy Abuse Prevention and Consumer Protection Act."
11. The Missouri Bar. "Protecting Retirement Assets From Creditors."

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1. Bankruptcy Explained: Types and How It Works
2. What You Need to Know
3. When to Declare Bankruptcy
4. These Debts Aren't Discharged
5. Should You File?

Types of Bankruptcy

1. Chapter 7
2. Chapter 9
3. Chapter 10
4. Chapter 11
5. Chapter 12
6. Chapter 13
7. Chapter 15
8. Chapter 7 vs. Chapter 11
9. Chapter 11 vs. Chapter 13

1. Why People Go Bankrupt
2. Prevent Bankruptcy
3. Don't File in Your 20s
4. Life After Bankruptcy
5. What Happens to Your Credit
6. Buying a House After Bankruptcy

1. Corporate Bankruptcy
2. Bankruptcy and Company Stock
3. Costs and Company Capital Structures
4. Shareholder Equity Under Chapt. 11
5. Profiting from Bankrupt Companies
6. Coming Back from Bankruptcy

Bankruptcy: Your Legal Rights

1. Bankruptcy Abuse Prevention and Consumer Protection Act
2. Protecting Assets from Creditors
3. Which Retirement Accounts Are Protected

Bankruptcy Terms (341/A-B)

1. 341 Meeting
2. Absolute Priority
3. Bankruptcy Court
4. Bankruptcy Discharge
5. Bankruptcy Financing
6. Bankruptcy Risk
7. Bankruptcy Trustee

Bankrupty Terms (C-I )

1. Cram-Up
2. Debt Discharge
3. Insolvency
4. Involuntary Bankruptcy

Bankrupty Terms (J-Z)

1. Nondischargeable Debt
2. Prepackaged Bankruptcy
3. Quick-Rinse Bankruptcy
4. Receiver
5. Technical Bankruptcy

An after-tax contribution is a deposit into a retirement account of money that has been taxed in the year in which it was paid into the account.

The life expectancy method calculates IRA payments by dividing the balance of a retirement account by the policyholder’s anticipated length of life.

The thrift savings plan (TSP) is a retirement investment program open only to federal employees and members of the uniformed services.

Chapter 11 is a type of bankruptcy generally filed by businesses and involves a reorganization of their assets and debts under court supervision.

Rule 72(t), issued by the Internal Revenue Service (IRS), allows for penalty-free withdrawals from an IRA account and other certain tax-advantaged accounts.

A quick-rinse bankruptcy is a bankruptcy proceeding that is structured to move through legal proceedings faster than the average bankruptcy.

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