Retirement Accounts: Are They Safe from Creditors?

Retirement 1If you’ve filed for bankruptcy or owe the bank money, a common question people have is, “Should I be worried about creditors going after my retirement funds?” According to a recent article on the Equifax Finance Blog, there are several things that may affect the answer to this question. Regardless of your financial situation, the experts at Equifax share some essential information to know about both ERISA-qualified retirement accounts and non-ERISA accounts:
ERISA-qualified retirement accounts:
According to the finance experts at Equifax, most retirement accounts set up under the Retirement Income Security Act (ERISA) of 1974 tend to be protected from seizure by creditors. ERISA covers most retirement plans, including 401(k) plans, pension plans and some 403(b) plans. If you owe money or file for bankruptcy and have accumulated millions of dollars in your retirement accounts, creditors cannot access money in these ERISA-qualified plans.
However, if you are incarcerated or go to prison, your money in an ERISA-qualified account may not be protected if the state garnishes those funds to compensate the prison for some of their costs. It’s also important to keep in mind that your retirement savings may also not be protected if the creditor is a former spouse or the IRS.
Non-ERISA accounts:
According to the finance experts, individual retirement accounts (IRAs), including Roth IRAs, are not protected under ERISA. State laws determine what is protected and what is not protected from creditors, with the exception of bankruptcy.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 protects IRAs up to $1 million, although money rolled over from an ERISA-qualified plan into an individual account may not be subject to these limits. It is possible to lose protection and the account’s tax-qualified status if you use your IRA for a prohibited transaction. For example, using your IRA to secure a loan or borrowing money from it can negate your protection.
Overall, the rules around ERISA-qualified and non-qualified accounts differ and can be confusing. If you are in financial trouble or just need help understanding your situation and how to deal with creditors, you may want to consult an attorney or financial planner.

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