Retirement accounts established under the Employee Retirement Income Security Act (ERISA) of 1974 are generally protected against seizure by creditors. If a creditor receives a judgment against you and you have a retirement account, the court creditor may be able to seize all or part of the account. This will depend on whether your account is an ERISA-qualified retirement account or a non-ERISA account. ERISA accounts are generally protected from judicial creditors, as are employee social benefits (such as health insurance, HSAs, and employer disability benefits).
In addition to bankruptcy, traditional contributory IRAs and Roth IRAs and legacy IRAs are only protected by state law. Since reinvested IRA funds come from accounts that meet ERISA requirements, such as a 401 (k) or employer pension, a refinanced IRA is fully protected against creditors in the event of bankruptcy. There are many other types of exemptions to protect you from lawsuits, in addition to the protection of IRA creditors in each state. ERISA plans are created with your employer and include 401 (k) plans, pension plans, SIMPLE IRAs, simplified employee plans (SEP), employee share plans, and profit sharing plans.
To ensure that a transfer from a qualified retirement plan to an IRA receives a full exemption in a bankruptcy proceeding, it is helpful to create a separate account just for those assets. On the other hand, IRAs funded by renewing a previous employer's retirement plan (each of which is called an “cumulative IRA”) are protected and do not count toward the limit of traditional or Roth contributory IRAs. In addition, these exemption limits do not apply to retirement funds transferred from an ERISA account to an IRA. If your retirement assets are held in a traditional or Roth IRA, these funds are only protected in a bankruptcy proceeding.
In the case of funds transferred from an ERISA plan to an IRA, ERISA creditor protections are generally lost in the event of bankruptcy. This is for informational purposes with respect to the state's protection of creditors from an IRA and should not be considered tax or legal advice. Participants in qualified retirement plans subject to ERISA should consider the degree of creditor protection when deciding to maintain their accounts under an ERISA plan or transfer them to an IRA. Money deposited in qualified retirement plans, such as 401 (k) plans and pension plans, is mostly protected from creditors, while traditional and Roth IRAs are protected by federal bankruptcy law.
Below, you'll see the various exemptions for creditors per IRA judgment by state (at the time of writing). In addition, SEP and IRA SIMPLE accounts also enjoy an exemption, as do IRA account renewals for employment plans. Whether you have a traditional IRA, a Roth IRA, or both, you should keep in mind that creditor protection from an IRA varies by state.