Retirement accounts are often the most valuable asset a person owns. Their ability to live a long healthy retirement depends on it. Retirement accounts are so important that in 2005, Congress changed the bankruptcy laws to protect retirement accounts and pension plans from creditors.

Most employer-sponsored plans, like 401(k)’s, are covered by the Employee Retirement Income Security Act (ERISA). ERISA completely protects retirement accounts from creditors unless those creditors are former spouses or the I.R.S. If you file for Chapter 7 bankruptcy, retirement accounts will not be touched.

Plans subject to this exemption include:

  • 401(k)s
  • 403(b)s
  • IRAs (Roth, SEP, and SIMPLE)
  • Keoghs
  • profit-sharing plans
  • money purchase plans, and
  • defined-benefit plans.


There are some limitations to the protections. IRA’s, including Roth IRA’s, are exempt from creditors up to the amount of $1,171,650 per person. If more than this amount is present in all of your retirement accounts combined, the additional money can be available to creditors. The amount of $1,171,650 is adjusted every three years to account for cost of living increases.

Retirement benefits that are paid out to you as income aren’t included either. The money must stay in the retirement account. Pay-outs are counted as income.

Transferring Funds

You shouldn’t make any financial or property transfers without consulting a lawyer. So if you leave a company that has a cash-balance pension plan, do not withdraw the money, it will count as income.

Don’t transfer funds into an IRA either. An IRA that has been converted to a Roth IRA cannot be rolled back into a company plan. Transfers, like from one retirement account to another must be in place prior to any financial problems. Attempts to hinder, delay, or defraud creditors will be considered a fraudulent conveyance.

If you plan to leave at least some of your I.R.A. to your family, remember that the assets may not be protected from your beneficiaries’ creditors, depending on where the beneficiaries live. If you need to disperse retirement funds to family members, you should setup a trust.

Warning: Do not to withdraw the money from the account and put it in a trust. It will become subject to income tax.

In Oregon and Washington, we can help you protect your financial future. If you are considering bankruptcy, make sure you talk to a lawyer prior to making any transfers.

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