There are no federal protections to protect your IRA from seizure in a lawsuit. No one expects them to demand it, but it happens all the time. You spend your life working hard to get your retirement savings and you don't want to lose them in a lawsuit. Fortunately, you can keep your retirement accounts protected if you stay proactive.
At Blake Harris Law, our experienced asset protection lawyers aim to help you protect your assets from lawsuits. Next, we explain the federal protection law that governs the different types of retirement accounts. Read on to learn if you need to take any steps to protect your individual retirement account. The ruling did not specify an exact number, so individual judges can use their best discretion when determining excess funding.
Average employed people don't usually exceed the creditor protection laws of IRAs, although business owners do. If your company is at greater risk of filing lawsuits, you should consider hiring a financial planner or lawyer to discuss your options. Medical institutions are an excellent example, although almost all companies risk filing lawsuits. If someone slips and falls in your tent or runs away, they could sue.
Even companies that are fully online risk filing lawsuits for non-compliance with the ADA if their websites don't meet digital accessibility standards. The most common type of lawsuit affecting retirement accounts comes from unpaid tax debts with the Internal Revenue Service (IRS), which violates the Internal Revenue Code. If a person or company files for bankruptcy, the judicial creditor can request the funds due a few months after the debtor comes forward. The debtor of the judgment could lose some retirement assets, depending on the state, sums deposited, inherited IRAs, and more.
State laws generally try to protect people from losing all the funds in their retirement accounts because of a lawsuit. For example, California dictates that the court cannot grant creditors in judgment (or anyone filing the lawsuit) funds from a retirement account that generate unreasonable living standards. The safest states to protect IRA funds are Arizona, Texas and Washington. Arizona state laws only allow a judicial creditor to request retirement funds during bankruptcy starting with the last 120 days of contributions, which means that all of the above have 100% legal protection.
Other states, such as New Hampshire and New Mexico, offer no regulation that protects retirement assets from judicial creditors. In such areas, the debtor of the judgment must rely on federal bankruptcy law and other previous mandates to stay protected from creditors. Some people may choose an individual retirement annuity, a traditional IRA, an accumulated IRA, a Roth IRA, a simplified employee pension plan (SEP) or a simple IRA, depending on their retirement planning needs and what their employer sponsors. For example, simple IRAs allow employees and business owners to contribute to the same retirement fund account.
Accumulated IRAs allow you to transfer IRA assets from the sponsorship of a previous employer to a new retirement plan. A pension plan provides retirement income that the employer funds. Each type of IRA has different levels of protection against lawsuits. Inherited IRAs and accrued benefits usually offer the least protection to creditors, while a regular Roth IRA includes more federal and state protection.
The Retirement Income Security Act of 1974 provides some protection to retirement plans such as 401 (k), 403 (b) and pension plans. The IRS and legal spouses are the only threats to employer-sponsored 401 (k) plans. Otherwise, any lawsuit you receive won't affect your 401 (k) plan's retirement benefits. Often, when a person or company accumulates excessive debt, creditors seek their assets to cover installments.
. To avoid the seizure of assets, many chose to file for bankruptcy. The Federal Bankruptcy Code outlines different methods of protecting against bankruptcy to help those who have problems with debts so that they don't lose everything. Bankruptcy generally results in a reduction in total debt or in the seizure of assets, depending on what you owe.
The bankruptcy court will consider your current income and assets compared to your obligation to determine how much you can reasonably pay over the course of your life. Taking proactive steps to protect your IRA will help you avoid massive legal complications in the future. For example, your state could eliminate a protected funds law that puts your money at risk. Relying on creditor protection under state or federal law can cause you problems, as exceptions to these rules apply.
Instead, we recommend that you take legal action now to keep your IRA safe. In doing so, you have a few options. National Asset Protection Trusts (DAPT) are irrevocable trusts that allow you to deposit your earnings in the name of the trust while remaining the primary beneficiary. Since these assets no longer exist in your name, they enjoy greater protection for creditors.
As a beneficiary, you can still access the money at almost any time. Keep in mind that certain states have different laws regarding DAPTs. Most require a trial period in which the money will not be protected, so debtors cannot fund a trust after receiving a lawsuit. In addition to this rule, many other exceptions may apply, so you should talk to your lawyer about the right option for your needs.
Some people also deposit their savings in an offshore asset protection trust as an alternative to the previous domestic option. Self-liquidated offshore asset protection trusts are irrevocable and have an independent trustee. The main advantage of opting for the high seas is to avoid the U.S. UU.
The most popular areas for creating offshore trusts include the Cook Islands and St. Foreign accounts involve complex laws and regulations that require professional advice. At Blake Harris Law, we have extensive experience helping clients resolve their legal issues without losing all of their savings. Whether you're facing a lawsuit or not, we recommend that you protect your hard-earned money so you can enjoy your retirement.
The easiest way to avoid legal problems is to think, plan and stay ahead of the curve and practice the proactive measures mentioned above. When you're ready to protect your future, contact our team at Blake Harris Law at 833-ASK-BLAKE or complete our online form to speak with an attorney experienced in asset protection planning. Individual retirement accounts (IRAs), including Roth IRAs, are not protected by the federal government under ERISA. The only exception is in the case of bankruptcy.
The Supreme Court added federal protection to traditional IRAs and Roth IRAs to the “reasonably necessary” extent. Of course, you may still be able to protect those funds through other exemptions available in your state. This protection against creditors of an IRA will not apply to anyone who uses their retirement accounts for prohibited purposes, such as committing to receive a loan. In general, most IRAs are protected from creditors, although some exceptions can put your funds at risk.
However, you can lose those protections and your account's tax status if you use your IRA for a prohibited transaction, such as pledging it as collateral for a loan or taking out a loan with it. Outside of bankruptcy, state laws determine whether money in an unqualified account is protected from creditors. As an heir, if you file for bankruptcy, your inherited IRA won't be protected from creditors unless you inherited it from a former spouse. However, there are some cases where money in an account that meets the ERISA requirements may not be protected from creditors.