IRA asset and creditor protection is a form of guarding your wealth. This is why it’s valuable for your IRA. Retirement accounts have become most Americans’ most valuable assets. Because of this, it’s important to protect your retirement funds from creditors, including people who have won lawsuits against you.

Generally, the asset/creditor protection strategies available to you depend on the type of account you have. Is your account a traditional or Roth, IRA or 401(k) qualified plan? Each of these accounts are subject to different asset and creditor protection strategies.

IRA Protection From Creditors by State

Are IRAs protected from creditors? The protection for these plans depends on your state residency, and whether the assets held are yours or if you inherited them.

IRA Asset Protection, also known as IRA Creditor Protection or IRA Bankruptcy Protection, can help protect the assets in your IRA from lawsuits, creditors, liens lawsuits and much more. It is a type of technique that provides protection by state. It is advised that you protect your assets prior to any claims or liabilities, as it’s often too late once a claim has occurred.

As you may know, when using a Self-Directed IRA, you have the opportunity to make a wide range of traditional and non-traditional investments. However, it’s important to note that you also receive strong asset and creditor protection.

So, by using an LLC that your IRA completely owns (Checkbook IRA), you gain another layer of limited liability protection. If you use an IRA LLC to make investments, you have better assets and protection compared to making the investment yourself. Because of this, it’s a wise choice to invest and grow your investment funds in a Checkbook IRA. It will protect your retirement assets from creditors, inside or outside of bankruptcy.

IRA Federal Protection for Bankruptcy

Similar to 401(k) qualified plans, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or the “Act”), which became effective for bankruptcies that filed after October 17, 2005, gave protection to debtor’s IRA funds. This was done by exempting IRA funds from the bankruptcy estate. In other words, most unsecured business and consumer debts. An unsecured debt is essentially a loan that is not backed by an underlying asset. The general exemption pro­vides an unlimited exemption for IRAs under section 408 and Roth IRAs under section 408A.

Effective April 1, 2022, the maximum aggregate bankruptcy exemption amount for IRAs increased from $1,362,800 to $1,512,350. This exemption amount is subject to cost-of-living adjustments (COLAs), having risen from an initial exemption limit of $1,000,000 as enacted with the Act.

IRA Asset and Creditor Protection Outside of Bankruptcy

In general, ERISA pension plans, such as 401(k) qualified plans, are afforded extensive anti-alienation credi­tor protection. This means that the plan benefits will not go to a creditor. And if the pension plan must pay creditors, it will lose its good tax status. This is both inside and outside of bankrupt­cy. However, these extensive anti-alienation protections do not extend to an IRA. And this includes a Self-Directed IRA arrangement under Code section 408. Therefore, since an individually estab­lished and funded Traditional or Roth IRA is not an ERISA pension plan, IRAs are not preempted un­der ERISA. Thus, for anything short of bankruptcy, state law determines whether IRAs (including Roth IRAs) will receive protection from creditors’ claims.

It’s important to note, on June 12, 2014, the Supreme Court unanimously upheld a Seventh Circuit decision that said Inherited IRAs do not enjoy the protections of IRAs in bankruptcy proceedings.

IRA Asset & Creditor Protection By State

The following table will provide a summary of state protection that IRAs receive, including Self-Directed IRAs, from creditors outside of the bankruptcy context:

State	State Statute	Special Statutory Provision	State Traditional IRA Exemption from Creditors?	Roth IRA Exemption from Creditors?
Alabama	Ala. Code §19-3B-508		Yes	No
Alaska	Alaska Stat. §09.38.017	In fact, the exemption does not apply to amounts within 120 days before the debtor files for bankruptcy.	Yes	Yes
Arizona	Ariz. Rev. Stat. Ann. § 33-1126C	In fact, the exemption does not apply to amounts within 120 days before a debtor files for bankruptcy.	Yes	Yes
Arkansas	Ark. Code Ann. §16-66-220		Yes	Yes
California	Cal. Civ. Proc. Code § 704.115		Yes	No
Colorado	Colo. Rev. Stat. §13-54-102		Yes	Yes
Connecticut	Conn. Gen. Stat. §52-321a		Yes	Yes
Delaware	Del Code Ann. § 10-4915		Yes	Yes
D.C.	D.C. Code § 15-501(a)(9) & (10)		Yes	Yes
Florida	Fla. Stat. Ann. §222.21	In this case, the debtor’s IRAs are exempt from creditors, however one Florida court has held that inherited IRAs are not exempt from creditors (Robertson v. Deeb, 16 So. 3d 936 (Fla. 2d Aug. 14, 2009).	Yes	Yes
Georgia	Georgia Code Ann. § 44-13-100(a)(2.1)	In this case, IRAs are exempt only to the extent necessary for the support of the debtor and any dependent.	Yes	No
Hawaii	Hawaii Rev. Stat. § 651-124	However, this exemption does not apply to contributions toward a plan or arrangement within three years before the date a civil action begins against the debtor.	Yes	No
Idaho	Idaho Code §§ 11-604A, 55-1011		Yes	No
Illinois	I.L.C.S. § 5/12-1006		Yes	Yes
Indiana	Ind. Code Ann. § 55-10-2(c)(6)		Yes	No
Iowa	Iowa Code Ann. § 627.6(8)(e), (f)		Yes	Yes
Kansas	Kan. Stat. Ann. § 60-2308		Yes	Yes
Kentucky	Ky. Rev. Stat. Ann. § 427.150(2)(f)	This exemption does not apply to any amounts contributed to an individual retirement account if the contribution occurs within 120 days before the debtor files for bankruptcy. Also the exemption does not apply to the right or interest of a person in an individual retirement account to the extent that right or interest is subject to a court order for payment of maintenance or child support.	Yes	Yes
Louisiana	La. Rev. Stat. Ann. §§ 20:33(1), 13:3881(D)	It’s important to realize no contribution to an IRA is exempt less than one calendar year from the date of filing bankruptcy. This is whether voluntary or involuntary, or the date rights of seizure are filed against the account. Also the exemption does not apply to liabilities for alimony and child support.	Yes	Yes
Maine	Me. Rev. Stat. Ann. Tit. 14, § 4422(13)(E)	Exempt only to the extent reasonably necessary for the support of the debtor and any dependent.	Yes	Yes
Maryland	Md. Code Ann. Cts. & Jud. Proc. § 11-504(h)(1)		Yes	Yes
Massachusetts	Mass. Gen. L. Ch. 235 § 34A; 236 § 28	The exemption does not apply to an order of court concerning divorce, separate maintenance or child support. Additionally, not to an order of court requiring an individual convicted of a crime to satisfy a monetary penalty or to make restitution. Furthermore, it does not apply to sums deposited in a plan in excess of 7% of the total income of the individual within 5 years of the individual’s declaration of bankruptcy or entry of judgment.	Yes	Yes
Michigan	Mich. Comp. Laws Ann. §§ 600.5451(1), 600.6023(1)(k)	The exemption does not apply to amounts an individual contributes to a retirement account or individual retirement annuity. Of course, this is if the contribution occurs within 120 days before the debtor files for bankruptcy. Also the exemption does not apply to an order of the domestic relations court.	Yes	Yes
Minnesota	Minn. Rev. Stat. Ann. § 550.37(24)	Protection limited to $60,000 (adjusts for inflation).	Yes	Yes
Mississippi	Miss. Code Ann. § 85-3-1(e)Applies to solo 401k plans		Yes	Yes
Missouri	Mo. Ann. Stat. § 513.430.1(10)(e) and (f)	Exemption limited to the extent reasonably necessary for support.	Yes	Yes
Montana	Mont. Code Ann. §§ 19-2-1004, 25-13-608, 31-2-106		Yes	Yes
Nebraska	Neb. Rev. Stat. § 25-1563.01	For IRAs – Bound to the extent reasonably necessary for support. Individual Retirement Accounts generally receive protection from attachment and garnishment to the extent the funds contained therein are reasonably necessary for the support of the debtor or any dependent of the debtor. Novak v. Novak, 245 Neb. 366, 513 N.W.2d 303 (1994).	Yes	Yes
Nevada	Nev. Rev. Stat. § 21.090(1)(q)	The exemption is limited to $500,000 in present value held in an IRA.	Yes	Yes
New Hampshire	N.H. Code Ann. § 511:2, XIX		Yes	Yes
New Jersey	N.J. Stat. Ann. § 25:2-1(b)		Yes	Yes
New Mexico	N.M. Stat. Ann. §§ 42-10-1, 42-10-2		Yes	Yes
New York	N.Y. Civ. Prac. L. and R. § 5205(c)		Yes	Yes
North Carolina	N.C. Gen. Stat. § 1C-1601(a)(9)		Yes	Yes
North Dakota	N.D. Cent. Code § 28-22-03.1(3)	Retirement funds that are in effect for at least one year to the extent those funds are in an account that is exempt from taxation. This is under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. So the value of those assets that are exempt may not exceed one hundred thousand dollars for any one account or two hundred thousand dollars in aggregate for all accounts.	Yes	Yes
Ohio	Ohio Rev. Code Ann. § 2329.66(A)(10)(b) and (c)	SEP and SIMPLE IRAs are not protected.	Yes	Yes
Oklahoma	31 Okla. St. Ann. § 1(A)(20)		Yes	Yes
Oregon	42 Pa. C.S. §§ 8124(b)(1)(vii), (viii), (ix)		Yes	Yes
Pennsylvania	42 Pa. C.S. §§ 8124(b)(1)(vii), (viii), (ix)	100%, except for amounts that are, first, contributed within 1 year (not including rollovers). Second, contributed in excess of $15,000 in a one-year period. Or, third, deemed fraudulent conveyances.	Yes	Yes
Rhode Island	R.I. Gen. Laws § 9-26-4(11), (12)		Yes	Yes
South Carolina	S.C. Code Ann. § 15-41-30(12)	IRA exemption limited to the extent reasonably necessary for support. For Solo 401(k) Plans, not limited to the extent reasonably necessary for support.	Yes	Yes
South Dakota	S.D. Cod. Laws §§ 43-45-16   S.D. Cod. Laws §§ 43-45- 17	Exempts “certain retirement benefits” up to $1,000,000.	Yes	Yes
Tennessee	Tenn. Code Ann. § 26-2-105	Distributions are 100% exempt to the extent they are on account of age, death, or length of service and debtors have no right or option to receive other than periodic payments at or after age 58.	Yes	Yes
Texas	Tex. Prop. Code § 42.0021		Yes	Yes
Utah	Utah Code Ann. § 78-23-5(1)(a)(xiv)	The exemption does not apply to amounts contributed or benefits accrued by or on behalf of a debtor within one year before the debtor files for bankruptcy.	Yes	Yes
Vermont	12 Vt. Stat. Ann. § 2740(16)		Yes	Yes
Virginia	Va. Code Ann. § 34-34	Limited to interest in one or more plans sufficient to produce annual benefit of up to $25,000 (pursuant to actuarial table in statute).	Yes	Yes
Washington	Wash. Rev. Code § 6.15.020		Yes	Yes
West Virginia	§38-10-4	Principal 100% protected. Exemption for distributions limited to the extent reasonably necessary for support.	Yes	No
Wisconsin	Wisc. Stat. Ann. § 815.18(3)		Yes	Yes
Wyoming	Wy. Stat. Ann § 1-20-110(a)(i), (ii). No statutory exemption for IRAs. – only mentions retirement plans	No statutory exemption for IRAs. – only mentions retirement plans	No	No

IRA Asset Protection Trust & Planning

The distinct federal and state creditor protections afforded to 401(k) qualified plans and IRAs, whether in or out of bankruptcy, offer significant asset protection planning opportunities.

For instance, if you leave an employer with a retirement plan, rolling over assets from a plan like a 401(k) into an IRA can have implications for asset protection. If you reside in or plan to move to a state where IRAs lack creditor protection, or if your plan assets exceed ~$1.5 million and you are considering filing for bankruptcy, it may be more advantageous to keep the assets in the company plan.

If you intend to leave part of your IRA to family members other than your spouse, your beneficiaries’ creditors might not be able to safeguard your assets, depending on their state of residence. Assets left to a spouse are more likely to receive creditor protection if the IRA is re-titled in the spouse’s name. However, to protect assets intended for family members other than your spouse, consider leaving an IRA to a trust. In this case, it’s essential to designate the trust on the IRA custodian’s Designation of Beneficiary Form on file.

Summary

By having and maintaining IRA accounts, you will have over $1.5 million of asset protection from creditors in a bankruptcy setting. However, the determination of whether your IRA will be protected from creditors outside of bankruptcy will largely depend on state law. As illustrated above, most states will afford IRAs full protection from creditors outside of the bankruptcy context.  IRA Asset and Creditor Protection should be an important part of your retirement savings planning.

If you want more information on IRA Asset and Creditor Protection, you can contact the specialists at IRA Financial to help assist you today. 

Frequently Asked Questions