Suppose you unexpectedly incur a major liability, from a lawsuit or some other unforeseen cause. Will the funds in your IRA be safe from your creditors? Maybe … or maybe not. Here are the rules:
Federal Law Protection
If you own an IRA that you’ve funded yourself with annual IRA contributions, then its complete value very likely will be protected from creditor claims if you are forced into bankruptcy.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2018 protects $1,283,025 of IRA funds from creditors in bankruptcy by exempting that amount from the bankruptcy estate that is within creditors’ reach. This dollar amount is adjusted every three years for inflation and will be re-set next in 2019.
In addition, employer-sponsored SEP IRAs and SIMPLE IRAs are fully protected in bankruptcy. This matches the protection given to other employer-sponsored retirement plans, such as 401(k)s.