Protecting Your Retirement Assets

It's well known that lawyers are overly abundant in the U.S.  That leads to the problem of too many frivolous lawsuits (what else is a lawyer to do)?  As a result, it's no surprise that someone could sue you for falling on the sidewalk in front of your house or claiming that when your dog barked, they got frightened and pulled a muscle in their back.

It's important for you to learn about asset protection devices such as irrevocable trusts and family partnerships.  But in this article, we focus on protecting your retirement assets.

Qualified plans (401k, pension, profit sharing, etc) are protected under federal statute so that someone who sues you cannot attach your plan’'s assets.  IRAs, however, are another matter.

IRAs are handled under state law. And as you might imagine, the laws can vary from state to state. Therefore, your IRA funds may not be protected.  Is there anything you can do?

One option is to roll your IRA funds back to a qualified plan.  Or if you have earned income from your own business, you could set up a Keogh plan and roll your IRA into the Keogh.  It's hazy (based on inconsistent court decisions) whether a one-person Keogh has the same protection as a plan that also covers employees.  So including an employee or checking with a local estate attorney is advised.

The other option is to liquidate the IRA account, pay the tax (which gets paid at some point in any case), and put the assets in a creditor-protected vehicle as mentioned in the second paragraph.

What about creditor protection of annuities?

Only 14 states offer complete protection for cash values and death proceeds; another 20 states have partial safeguarding, and the remaining 16 jurisdictions offer little, if any, shelter.

If your state offers better creditor protection on annuities than on IRAs, it could make sense to buy an annuity in your IRA.  Again, check with a local estate attorney.


Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice.  Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.