IRAs Receive Increased Protection from Creditors

The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 and a 2005 Supreme Court ruling combine to offer substantially increased and simplified bankruptcy creditor protection for retirement accounts.

Before 2005, laws protecting IRAs differed by state. Only "ERISA-qualified" plans such as pension, 401(k) and profit-sharing plans were protected from creditors.

Now, SEP-IRAs, SIMPLE IRAs and Rollover IRAs are treated as qualified plans, receiving complete protection from creditors.

Traditional IRAs and Roths are protected up to $1,000,000, adjusting for inflation, regardless of the state in which a debtor files for backruptcy protection. The accounts may be subject to higher exemptions, if the court deems the amount to be reasonably necessary to provide for the debtor and his or her dependents.

This change should reduce concerns about holding retirement assets outside of company-sponsored plans.

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