Monday, November 15, 2010

401(k) and IRA Protection from Judgment Creditors

By Sean Burke

Recently I was asked about the protection of 401(k) and IRA assets from judgment creditors outside of bankruptcy. Pennsylvania law largely protects these retirement assets.  Investing in retirement plans is often a great way for employees to protect their assets. But that protection isn’t absolute. Nevertheless, in terms of asset protection strategies, funding your retirement ranks among titling assets jointly with your spouse and timely paying your insurance premiums.

Sean Burke, McQuaide Blasko
Under 42 Pa.C.S. Section 8124(b)(1)(ix), any retirement or annuity fund provided for under, among others, section 401(a) or 408 of the Internal Revenue Code, is exempt from execution or attachment on a judgment. That includes 401(k) and IRA assets. There are three exceptions: (1) The exemption doesn't apply to amounts contributed in excess of $15,000 in any one year period. (2) The exemption doesn’t apply to amounts contributed within one year of bankruptcy. (3) The exemption doesn’t apply to amounts contributed in an attempt to defraud creditors. Those exceptions don’t apply to contributions resulting from the rolling over of an otherwise exempt asset. In other words, rolling over $100,000 from your 401(k) into your IRA won’t disturb the asset’s exemption.

Your 401(k) and IRA assets are generally exempt from your creditors. To an extent, those assets are better protected than your home. But this article isn’t legal advice. So you shouldn’t rely on it. Instead you should consult with an experienced planner or advisor.

Sean Burke practices business and estate planning and administration in the Blair County office of McQuaide Blasko. He can be reached at (814) 283-2000 or smburke@mqblaw.com.