Can Your 401(k) or IRA Be Seized If You File for Bankruptcy?

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Filing for bankruptcy is challenging, but sometimes it’s the best way to get you back on firm financial footing. If you’re considering bankruptcy, you may be wondering if you will have to forfeit your 401(k) or IRA retirement account. In most cases, you won’t, but here’s what you need to know.

Are 401(k) and 403(b) Accounts Protected in Bankruptcy?

Most employer-sponsored retirement plans are covered by ERISA, the Employee Retirement Income Security Act. This includes 401(k)s, 403(b)s, profit sharing plans and deferred compensation plans that are sponsored by your employer. ERISA-qualified plans are protected in bankruptcy, so you’ll be able to keep your retirement funds. Double check to make sure your plan is ERISA-qualified.

Are IRAs Protected in Bankruptcy?

There are several different kinds of IRAs, so you need to understand which kind you have. SEP-IRAs, SIMPLE IRAs and rollover IRAs are all fully protected. Note that SEPs and SIMPLEs are typically handled through your employer, and a rollover IRA is funded with money that came from an employer plan.

Traditional and Roth IRAs are protected up to a limit of $1,512,350 per person, regardless of how many accounts you have. The total of all your Traditional and Roth accounts combined is subject to the limit, which is adjusted every three years.

IRAs are protected under the Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA.

Is Retirement Income Protected in Bankruptcy?

If you are already retired and you are collecting a pension and/or Social Security, this income can factor into your bankruptcy plan. This retirement money will be counted as income when determining if you are eligible to file Chapter 7 bankruptcy, or how your debts will be repaid if you file Chapter 13 bankruptcy.

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Rules can vary from state to state, so it’s a good idea to work with a local bankruptcy attorney. They’ll help you navigate the process so you can begin to rebuild your financial life.

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