IRA and Bankruptcy/Creditor Protection

Submitted by Alanna Crawford on Wed, 2014-07-30 18:53

In a 2013 article in the Slott Report, it outlined that there is no maximum exemption for qualified retirement plans in bankruptcy proceedings, and the same held true for SEP and SIMPLE IRA assets. It contended that once qrp assets are rolled into an IRA, they maintain their unlimited dollar protections. However, the same does not hold true for SEP and SIMPLE IRA plans. Those assets are considered IRA assets once rolled over and would be subject to the (roughtly) $1.2 million aggregate exclusion.

Am I understanding this correctly?



Submitted by Alan - IRA critic on Thu, 2014-07-31 00:44

  1. IRA asset protection is basically state statute driven. 26 states fully protect all IRAs from creditors, exempting them from a bankruptcy estate. The others to various degrees have opted out of none, some, or all of the federal bankruptcy protections. Where these rules do apply, they only apply to bankruptcies filed in the federal court system.
  2. For states in which the federal bankruptcy law of 2005 applies fully, there is no dollar limit for protection of a rollover IRA or a SEP or SIMPLE IRA. I think you are asking what the level of protection is once the SEP or SIMPLE IRA itself is rolled over to a TIRA or Roth IRA. According to Investopedia a SEP or SIMPLE after a rollover is treated as a qualified employer plan and maintains unlimited protection in bankruptcy.

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