Business & Finance Bankruptcy

Is an IRA Protected From a Lawsuit?

    Function

    • If you are sued or file for bankruptcy protection, creditors might be able to collect judgments from your IRAs, depending on which state you live in. Unlike 401k plans, which are virtually untouchable, IRA protection varies by state.

    Potential

    • As of early 2010, Congress was contemplating a law that would limit the maximum protected amount in an IRA to $1 million, according to the Los Angeles Times. That might sound like a lot, but inflation is likely to significantly affect the value of that money over the person's retirement years.

    Warning

    • Some states, such as New Hampshire and New Mexico, offer no protection to IRA accounts, according to the Los Angeles Times. If you have a large IRA, you should check with your state laws to determine whether any or all of it is at risk.

    Prevention

    • If you have a large IRA, you might want to increase your insurance coverage in case of an accident, to insure that the damages will not exceed your limits. That way, the security of your IRA will not be in doubt.

    Considerations

    • If you have money in a 401k plan, you might want to leave it in the 401k rather than rolling it over into an IRA, because money in a 401k cannot be taken by creditors or in a lawsuit.

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