IRA Bankruptcy protection: Contributory vs. Rollover IRAs?

Submitted by Dan Garashvili on Wed, 2024-10-09 08:59

I read that there is a difference in federal bankruptcy protections between

1. A contributory IRA, which only has funds that I contributed directly and the earnings on them, and

2. A rollover IRA, which only has funds rolled over from my ERISA 401(k) plan and the earnings on them.

Is that true, and if so, what is the difference?

Thanks,

Dan



Submitted by Alan - IRA critic on Wed, 2024-10-09 11:49

It depends on the state that you live in. Many states provide creditor protection for all IRAs. In states that do not the federal bankruptcy Act comes into play, but only applies if you file for bankruptcy. In those cases rollover IRAs from employer plans are protected without limit, but contributary IRAs are limited to around 1.5mm in protection.

In CA, a rollover IRA may get full protection per a court decision, but contributary IRA protection may be limited to as little as 100k.

Submitted by Dan Garashvili on Wed, 2024-10-09 12:31

Alan,

Thank you very much. I follow your answers generally, even those that do not apply to me, and they are all very clear and helpful to those who needs answers.

Best,

Dan

 

 

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