Case of the Week – Creditor Protection of Retirement Assets

 By Jenny Kiffmeyer, J.D – The Retirement Learning Center

Creditor Protection of Retirement Assets

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Minnesota is representative of a common question on creditor protection for retirement plan assets. The advisor asked: “Can you give me a refresher on the creditor protection rules for retirement plan assets at the federal and state levels?”

Highlights of the Discussion

  • The level of creditor protection for retirement plan assets depends on 1) the type of plan assets, and 2) whether the owner of the assets has filed for bankruptcy and, if not, the governing laws of the state with jurisdiction over the assets.
  • The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), effective October 17, 2005, clarified the level of creditor protection for retirement plan assets when the owner has filed for bankruptcy.


  • BAPCPA amended Section 522 of the Bankruptcy Code to exempt from a debtor’s bankruptcy estate retirement assets that are held in
    • IRC Sec. 401(a) plans (e.g., 401(k), defined contribution and defined benefit plans);
    • 403(b) plans,
    • Traditional IRAs (up to $1 million of contributory assets, indexed periodically),
    • Roth IRAs (up to $1 million of contributory assets, indexed periodically),
    • Simplified employee pension (SEP) plans,
    • Savings Incentive Match Plans for Employees (SIMPLE) plans,
    • Church plans,
    • Governmental plans,
    • Multiemployer plans,
    • Eligible 457(b) plans of state and local governments and IRC Sec. 501(c)(3) tax-exempt organizations and
    • IRC Sec. 501(a) plans of tax-exempt organizations.
  • Eligible rollover distributions under IRC Sec. 402(c) retain the unlimited bankruptcy protection given to them while held in the exempt retirement plan if they are contributed to another eligible retirement plan within 60 days of distribution. Earnings on the rollover assets are protected as well.


  • In nonbankruptcy situations, assets held in ERISA plans are fully protected under the anti-alienation provision of the law [see Section 541(c)(2) of the Bankruptcy Code pursuant to Patterson vs. Shumate, 504 U.S. 753 (1992) and Section 206(d)(1) of ERISA].
  • The protection of IRA assets (including rollover amounts) from general creditors of the IRA owner in nonbankruptcy situations falls under applicable state law, with many states—but not all—providing some level of exemption. (Link to State Government Websites for more information)
  • Keep in mind that any qualified retirement plan or IRA (including traditional, Roth, rollover, SIMPLE or SEP plan IRAs) may be subject to an IRS tax levy.


The amount of creditor protection for retirement assets depends on whether the investor has filed for bankruptcy or not, and the type of retirement savings arrangements involved.  For specific situations, individuals should consult legal counsel.


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