Creditor Protection for Retirement Accounts: ERISA, the Supreme Court, and the Bankruptcy Act of 2005

Kitces, Michael E.
August 2005
Journal of Financial Planning;Aug2005, Vol. 18 Issue 9, p44
Academic Journal
• The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCPA), signed into law on April 20, 2005, and effective on October 17, 2005, has substantially increased and simplified bankruptcy creditor protection for retirement accounts. • SEP (Simplified Employee Pension) IRAs, SIMPLE (Savings incentive Match Plan for Employees of Small Employers) IRAs, and 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. • Distributions from all defined-benefit and defined-contribution employer retirement plans fully retain creditor protection if they are roiled over to an IRA, obviating the "need" to keep assets in ERISA plans for bankruptcy creditor protection. • Traditional and Roth IRAs will be subject to creditors to the extent that accounts exceed $1 million, excluding any amounts attributable to rollovers from qualified plans. Since the IRA contribution limit has been so low for decades, it is unlikely that any individuals will actually be subject to this limit in the foreseeable future. • IRA protection, at least to the extent of $1 million, now applies regardless of the state in which the debtor files for bankruptcy, apparently overriding (favorably) the recent Rousey v. Jacowoy Supreme Court case. • Employer retirement plan protection (including SEP and SIMPLE IRAs, and non-ERISA retirement plans such as individual 401 (k)s) now receive unlimited creditor protection during bankruptcy, regardless of ERISA. • Financial planners will need to re-educate themselves on the new rules of bankruptcy creditor protection as opposed to the old rules of ERISA protection, state-specific IRA protection, and the Rousey v. Jacoway Supreme Court case.


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