IRA Creditor Protection
A client living in Georgia has just over $2M in a company 401k and he is retiring next week. He is concerned about doing an IRA transfer/rollover to his IRA because he will lose the full 401k creditor protection and he is worried what would happen to his IRA assets if he got sued. Georgia does not seem to offer the same level of protection to IRAs versus 401Ks.
Don’t all IRAs receive full protection like a 401k would up to $1,711,975 for 2025 regardless of Georgia state law? Also, if we transferred the full $2M to a Rollover IRA wouldn’t the full 2M continue to receive full creditor protection if we kept the dollars in a separate “Rollover” IRA? I just want to make sure he has full protection of his IRA assets if we transfer the 401k to his IRA.
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2025-10-06 18:45
An IRA in GA cannot be garnished even when the IRA owner does not file for bankruptcy. There are no dollar limits. This was confirmed in the 2022 case of Hoffman v Signature Bank of GA. Therefore, subject to any future court decisions, IRA creditor protection is equivalent to ERISA protection for qualified plans.
However, should the IRA owner take a distribution from the IRA, the distribution is not protected from creditors except to the extent of the IRA owner’s basic needs of support including dependents. Further, upon reaching 73, RMDs will require that distributions be made that could be subject to collection. That is likely also the case for a 410k RMD.
This info is subject to any more recent court decisions interpreting the GA creditor statutes.
Permalink Submitted by Jonathan Sard on Mon, 2025-10-06 19:02
Thank you! If we don’t want to rely on that specific ruling, does what I wrote below regarding the $1.711,975 exemption provide protection? How about if he rolled the money into a Rollover IRA and kept it segregated?
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2025-10-06 21:55
If rolled to a rollover IRA, there is no dollar limit for creditor protection under the BK Act, however he would have to file for BK in an appropriate court, which means he could lose his other assets while receiving IRA creditor protection. The 1. 712mm limit only applies to contributary (non rollover) IRA accounts.
The Hoffman case more or less just confirmed the exemption of IRAs from creditors, so even if ignored the IRA owner most likely has creditor protection for IRAs outside of bankruptcy. Less certain for Roth IRAs.