Most types of retirement plans are protected from any type of bankruptcy you file. For example, if your retirement plan is completely protected and you file for a Chapter 7 petition, this means that the trustee will have no right to use any of it to pay your creditors. (However, there are few exceptions to this, so make sure to double check.)
What’s Protected
Practically all forms of retirement are protected. Except for a few specific situations, there are unlimited amounts that are protected.
All forms of retirement under the Employee Retirement Income Security Act (ERISA) are covered:
- 401(k)s
- 403(b)s
- IRAs (Roth, SEP, and SIMPLE)
- Keoghs
- Profit-sharing plans
- Money purchase plans
- Defined-benefits plans
Retirement forms recognized by the Internal Revenue Service are also protected:
- Stock bonus and employee stock ownership plans under 401 of the Internal Revenue Code (IRC)
- Qualified annuity plans under IRC 403
- Church, partnership, proprietorship and government retirement plans under IRC 414
- Deferred compensation plans under IRC 457
- Retirement plans by tax-exempt organizations under IRC 501(a)
What’s NOT Protected
What is not protected is the money that is not in your retirement accounts. Any money that is bank accounts meant for retirement later on, but do not meet the legal requirements can be seized to pay back your creditors.
Retirement plans can also lose their protection if they are transferred.
Limitations to Exemptions for Traditional and Roth IRAs
The only type of limitations to this rule involve traditional and Roth IRAs. For IRAs and Roth IRAs, the amount the bankruptcy court cannot touch is limited to $1,283,025 per person. This amount is reevaluated every three years to keep up with the standards of living. However, if your IRA plan exceeds the limit, the excess amount may be taken to pay your creditors.
If you have a retirement plan and are thinking about bankruptcy, it is especially important to review all your options of bankruptcy with an experienced bankruptcy attorney. Contact me today so I can answer all your questions and help you make the right decision.
