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Are Retirement Accounts Protected from Creditors?

One reason to focus on clearing debts before you retire is the worry that if creditors may see retirement accounts as money, they could garnish them. Luckily, The Employee Retirement Income Security Act (ERISA) of 1974 Protects you from having your retirement money seized by creditors. The ERISA covers most employer-sponsored retirement plans including 401(k) plans pensions, and even some 403(b) plans.


If you owe a lot of money and have to file for bankruptcy, any money that you have saved in your retirement accounts will be safe if they are ERISA-qualified plans. Be aware that not all accounts are equal. Individual retirement accounts, or IRAs, do not fall under the protection of the federal government under ERISA. In 2005 BAPCPA (the bankruptcy abuse prevention and consumer protection act) gave federal protection of $1 million for IRAs. There are rules attached where you could lose the protection of the federal government and the tax-qualified status of the IRA if they use the money for a prohibited transaction. Examples of this are using it to secure a loan or borrowing from it.

What is an IRA?

An IRA is an account for retirement investments. You put money into an investment firm or bank which invests your money for you. An IRA can invest in all sorts of things that have value. Typically, they are stocks and bonds.  But research has shown that they could be gemstones, gold, or any other valuable commodity. Nearly every financial services company has an IRA on offer. Finding the best one for you is down to getting professional advice and figuring out what you require from your investment. The exception to this rule is in case of bankruptcy. If bankruptcy is not the case then the individual state determines whether the money is a qualified or nonqualified account and could be protected from creditors. 

“The rules about which accounts qualify and which don’t can be rather confusing,” says Richard Eden senior vice president of David Lerner Associates, “so check your state laws and get professional advice from a financial planner to be sure that you don’t get into trouble. It is far better to be sure so that you don’t have to face any penalties later.”

If you are worried about creditors then you have debt. Being in debt is not a comfortable position and can cause worry and stress. Get great advice and figure out a way to get out of it if you possibly can. Luckily, your retirement account should be protected from creditors depending on what type of investments you have. 


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. 

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. 

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