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Retirement Protection

Are Your Retirement Assets Protected From Creditors?

EVEN IF YOU HAVE EXCELLENT CREDIT, COULD A LAWSUIT IMPACT YOUR RETIREMENT SAVINGS?

Several clients have asked me recently about the ability of creditors to access their IRA or 401(k) retirement funds. Even if you have excellent credit, could a lawsuit impact your retirement savings?

Under federal law, a qualified retirement plan has unlimited protection while IRAs are protected up to $1,283,025. Other IRA protections are up to each state. In Louisiana, IRAs are generally protected if assets were not moved to the IRA within one year of bankruptcy.

While all that seems beneficial two new issues have arisen that clients need to be aware of:

  1. In 2014 the Supreme Court ruled that an Inherited IRA was not subject to federal bankruptcy protection.
  2. In 2018 a Bankruptcy Court ruled that certain IRA assets received by a spouse in a divorce settlement were not protected from bankruptcy.

Both cases were somewhat surprising and need to be further tested.

In summary, your qualified assets are protected by federal law. Your IRA is generally protected by federal and state law (depending on your state), but certain issues may exist with Inherited IRAs and assets received in divorce. Talking to an attorney who specializes in asset protection is always a good idea.