Creditor Protection of your IRA & ROTH IRA
I continue to be very confused on this topic and how/if our IRA’s are protected from Creditors. Here are my questions.
1) Many articles indicate that 401K ERISA assets are fully protected from Creditors. In many cases, one’s IRA and/or ROTH IRA are 100% funded by ‘401K rollover dollars’. That being the case, is my IRA and/or ROTH fully protected by ERISA ??
2) When one files their taxes, they complete the IRS FORM 8606 to show any $$ you contributed after-tax to your IRA. If the
IRS thereby sees that I have never filed a Form 8606, will the IRS assume that the asset value in your IRA and/or ROTH is
all form 401K rollovers and thereby protected via ERISA ?
3) If my IRA does not enjoy any ERISA protection & I do not intend to declare Bankruptcy (USA says I get some creditor protection during Bankruptcy) , I am told that it depends what state I live in….
I live in Florida & I can’t find a lawyer that can/will give a full answer to the Creditor Protection on my IRA or ROTH.
Does anyone know how/where I can get this answered in full for Florida ???
Thank you…
Permalink Submitted by Alan - IRA critic on Thu, 2021-08-19 18:48
No. ERISA does not apply to IRAs at all or to solo 401k plans outside of bankruptcy. Rather than ERISA, your IRAs receive protection under state laws or the federal BK Act of 2005. The latter only protects IRAs when BK has been filed in the proper court, but many states provide complete protection under state statutes. Note that all plans, even ERISA plans are subject to marital settlements or IRS liens, so no protection against those creditors.
Whether you properly file an 8606 or not is immaterial to an account’s creditor protection. But if you can show that an IRA account was totally funded by an employer plan rollover (IRA formerly known as a conduit IRA and now as a “rollover” IRA), there are no dollar limits to the creditor protection under the BK Act. But if an IRA received regular contributions of any amount they are no longer “rollover IRAs”, and are subject to an inflation adjusted limit, which is 1,283,000 at present. Again, if a state fully protects an IRA, this bankruptcy protection is not needed, and the IRA is also protected outside of bankruptcy.
One well known website indicates that FL offers complete IRA creditor protection (Statute Sec 222.21), even including inherited IRAs, which are not protected under federal laws. However, that site (link below) has not been updated for 7 years, although I expect that the FL info is still valid.
stateirachart.pdf (thetaxadviser.com)