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IRAs and Other Retirement Plans
Now Further Protected in Bankruptcy
The Bankruptcy
Abuse Protection and Consumer Protection Act of 2005 (BAPCPA),
effective on October 17, 2005, substantially increases and simplifies
bankruptcy creditor protection for retirement accounts.
Essentially, all defined-benefit and defined-contribution employer
retirement plans now receive unlimited creditor
protection in bankruptcy, regardless of whether the plan is subject to
ERISA. This includes SEP (Simplified Employee Pension) IRAs,
SIMPLE (Savings Incentive Match Plan for Employees of Small Employers)
IRAs AND all assets "rolled over" from most qualified
employer plans into conventional rollover IRAs.
Assets
exceeding $1 million are in a few cases not protected, although such
cases are few and explicit.
To summarize:
- Traditional and Roth IRAs are exempt
up to $1 million (note that even this limit applies only to
ordinary
IRA contributions - not rollovers. Unlikely to exceed $1mil
without extraordinary investment returns -- see #3)
- SEP and SIMPLE IRAs are exempt for an unlimited amount (but
rollovers from them to other IRAs fall under #1 above)
- All other types of tax-deferred retirement accounts, or rollovers
from them now held in IRAs, are exempt for an unlimited amount
You may find
this article most interesting and informative: http://www.fpanet.org/journal/articles/2005_Issues/jfp0805-art6.cfm
These plans,
while not sophisticated or complex investment vehicles, may in fact be
easy and effective protection of substantial assets from creditors in
case of a personal or business financial crisis. Consult your
financial advisor to explore these options.
Thanks to Ron Wiley and Denny Zaverl
for contributions to this Alert
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