The threat of creditors taking funds from retirement accounts is a genuine threat, and preretirees should be taking the proper steps to protect their accounts from these debt collectors. Accounts such as IRAs and 401(k)s fortunately have federal protection against creditors, but the regulations surrounding other accounts vary from state to state. Being informed in regards to your local laws and the level of protection that they provide you with will enable you to keep creditors at bay as much as possible.
- Up to $1.35 million in IRA contributions are protected from creditors in bankruptcy, as are all funds rolled over from company plans.
- Keeping good records of what money in your IRA comes from company plans — or even just rolling them over into a separate IRA — can help maximize protection.
- Different states give IRA funds different levels of protection from creditors in other judgments.
“retirement plans, such as 401(k)s, are the most secure because federal law protects them from creditors”