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Are IRAs Protected in Bankruptcy?


If you’re considering filing Chapter 7 or Chapter 13 bankruptcy and you have an individual retirement account (IRA), you may be wondering if it would be protected or if the funds can be taken to pay off your creditors – a valid concern indeed! After all, you’ve worked hard to save those funds and the last thing you may want is to kiss your retirement goodbye.

We have good news: IRAs are substantially protected from creditors when debtors file for bankruptcy. These protections were signed into law by President George W. Bush under the Bankruptcy Abuse Prevention and Consumer Protection Act, also known as BAPCPA. However, the protection varies depending on the type of IRA. As of this writing:

  • A traditional IRA or Roth IRA is protected up to a value of $1,362,800 with adjustments for inflation every three years (next adjustment in 2022), and
  • A SEP or SIMPLE IRA and most rollover IRAs are fully protected in bankruptcy regardless of the account’s value.

Are 401(k)s Protected?

If you have a 401(k) plan and not an IRA, that is protected as well. In fact, 401(k) plans have been protected by federal bankruptcy laws for a long time. IRAs, on the other hand, did not come under federal protection until the BAPCPA was enacted.

In 2005, the nation saw a lot of bankruptcy reforms, including heightened requirements for filing a Chapter 7 and federal protection for assets held in IRAs. Before the BAPCPA, states decided on IRA protections, but after the BAPCPA, IRAs were protected from creditors in bankruptcy in all states.

While this article briefly discusses the protections afforded to IRAs and 401(k)s, it is not complete. If you are considering filing for bankruptcy and would like to know more about the protections for retirement accounts, we encourage you to speak to an attorney from our firm.

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