IRA Rollovers, Bankruptcy/Medical Malpractice Protection, and Receiving Account Type
We are in the process of evaluating whether to do a rollover from a client 403(b) plan. The client (a doctor) has been told by colleagues who attended a seminar that moving the money out of the 403(b) plan to a Rollover IRA would expose the funds to legal claims in the event of a lawsuit or bankruptcy. The client works and lives in Massachusetts. I am looking for some feedback on the following:
- Are funds moved from a 403(b) or 401(k) to a Rollover IRA exposed to bankruptcy or lawsuits (medical malpractice claims) in Massachusetts?
- Do rollover proceeds need to go into a separate Rollover IRA to achieve this protection (if applicable), or can the same level of protection be achieved if commingled with other tax-deductible IRA contributions in a Traditional IRA?
Permalink Submitted by Alan - IRA critic on Wed, 2024-10-16 12:29
MA provides creditor protection for IRAs and Roth IRAs with exceptions for restitution for crimes, QDROs/child support, IRS liens, and amounts contributed to the IRA in excess of 7% of participant’s income in the 5 years prior to filing for BK. This last exception may be a concern due to malpractice exposure. On the other hand, if the 403b is a non ERISA plan, the creditor protection may be no better.
For the above gaps in IRA creditor protection, if a rollover is done it should go to a rollover IRA that contains no regular contributions or gains from regular IRA contributions. Then, if client is forced to file BK the rollover IRA would be protected without a dollar limit, which otherwise would be 1.5mm.