Retirement accounts established under the Employee Retirement Income Security Act (ERISA) of 1974 are generally protected against seizure by creditors. ERISA covers most employer-sponsored retirement plans, including 401 (k) plans, pension plans, and some 403 (b) plans. Whether your Individual Retirement Account (IRA) can be used in a lawsuit depends largely on your state of residence and the judgment in question. 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. .
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. In such scenarios, you could lose your car, property, or other valuable items.
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.
We recommend discussing this option with an asset protection attorney before proceeding with anything. 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. Employer-sponsored 401 (k) plans are safe from lawsuits. Only the Internal Revenue Service or a spouse can make claims on that money.
Employer-sponsored accounts are protected by the Employee Retirement Income Security Act. Congress authorized 401 (k) plans to help employees have some money to fall back on when their workdays are over. Federal lawmakers gave these retirement plans special protections for this reason. What is the rule for 401 (k) plan protection? Employer-sponsored accounts are protected by the Employee Retirement Income Security Act.
Therefore, employer-sponsored 401 (k) plans are generally safe from litigation. The only parties that can file claims for that money are the Internal Revenue Service or spouses. Funds that remain intact in your IRA may receive greater protection than funds taken as distribution. However, an important issue remained unresolved when the court found that IRA money was protected or dispersed only when it was considered “reasonably necessary” to maintain the owner of the IRA and anyone in his care accordingly.
In some cases, you may be legally required to draw on your retirement savings to pay off debt if you can't pay with other assets. Even in states with generous exemption systems, IRA protections are lifted in cases of judgments related to child support, alimony, or other domestic relations. While the federal government provides special protections for company-sponsored 401 (k) plans, each state has its own rules for IRAs. Others offer full protection to IRA funds deposited before a certain number of days before the judgment.
In fact, the only guaranteed federal protection for your IRA is a partial bankruptcy exemption. The Supreme Court ruled that, in general, the assets of traditional and Roth IRAs are protected as garnishes or disbursements due to a lawsuit. In Hawaii, any fund you contribute at least three years before a judgment is handed down against you is protected against seizure. Other states, such as New Hampshire and Mexico, don't have laws that specifically address how IRAs are protected in lawsuits.
However, the court left an important issue unresolved by stating that IRA money is only protected to the extent that it can be considered reasonably necessary to support the owner of the IRA and their dependents. .