IRAs, Roth IRAs, and SEP-IRAs are non-ERISA plans, so they don’t enjoy creditor protection under federal law. What kind of asset protection do you have with non-ERISA plans? That’s a function of state law; each state has its own rules, providing more or less asset protection. What’s more, different types of retirement plans may have varying levels of asset protection, within one state.
In many states, owners of IRAs and other non-ERISA plans are allowed to protect what’s “reasonably necessary” for the support of the debtor and the debtor’s dependents. This will be a subjective judgment, determined by the courts on a case-by-case basis.
What is considered to be reasonably necessary might be determined by factors such as your present and anticipated living expenses, present and anticipated income from all sources, your age and the ages your dependents, and so on. A substantial amount of your retirement assets might be sheltered–or most of the money in your account might be awarded to a creditor.
Thus, you should know what the rules are in your state. If your state does not have strong asset protection for IRAs, you might want to keep your retirement assets inside an employer-sponsored ERISA plan instead of rolling money into an IRA. If you’re thinking of relocating to another state, find out about the new state’s asset protection rules.
