IRAs are generally protected from creditors, but how much protection you get depends on four things: whether you’re in bankruptcy or facing an ordinary lawsuit, what type of IRA you hold, where the money originally came from, and what kind of debt the creditor is trying to collect. In federal bankruptcy, traditional and Roth IRA balances built from your own contributions are shielded up to $1,711,975, while money rolled over from an employer plan has no dollar cap at all. Outside bankruptcy, protection is set by state law and varies widely. A handful of debts, including unpaid federal taxes and domestic support, can pierce these protections entirely.
Bankruptcy Protection Is Different From Lawsuit Protection
The first thing to understand is that “protected from creditors” means two different things depending on the setting.
If you file Chapter 7 or Chapter 13 bankruptcy, a federal exemption in the Bankruptcy Code keeps most IRA money out of the bankruptcy estate. That exemption applies in every state, including states that otherwise force debtors to use state-specific exemption lists. Congress carved it out so no state can override it downward.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
If you’re not in bankruptcy and a creditor sues you, wins a judgment, and tries to collect, the federal bankruptcy exemption does not apply. Your protection depends entirely on the laws of the state where you live. This is the most misunderstood part of IRA safety. The same account can be well-protected in bankruptcy and much more exposed to an ordinary judgment creditor.
The Bankruptcy Cap on Traditional and Roth IRAs
For money you contributed directly to a traditional or Roth IRA, the federal bankruptcy exemption is capped. As of April 1, 2025, the cap is $1,711,975, and it adjusts for inflation every three years.2United States Courts. Exemptions (Schedule C) Effective April 2025
Two features of this cap matter in practice. It is aggregate, not per-account: you don’t get a fresh $1,711,975 allowance for each traditional or Roth IRA you own. And anything above the cap that came from direct contributions can be seized by the bankruptcy trustee to pay creditors.
The Bankruptcy Code does let a court raise the cap “if the interests of justice so require,” but courts rarely invoke this.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
Rollover, SEP, and SIMPLE IRAs Are Not Capped
The dollar cap only applies to your own direct contributions. Money rolled over from an employer plan like a 401(k), 403(b), or governmental 457(b) is completely excluded from the cap calculation, along with earnings on that rollover money.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions So a rollover IRA holding $5 million is fully exempt in bankruptcy.
The logic: employer plans were already protected without a dollar limit under ERISA, and Congress didn’t want people to lose that protection just because they moved the money into an IRA after leaving a job.
SEP IRAs and SIMPLE IRAs get the same unlimited treatment. The Bankruptcy Code’s cap specifically excludes SEP accounts under IRC § 408(k) and SIMPLE accounts under § 408(p), so the entire balance is exempt in bankruptcy no matter how large.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
Because rollover money is treated so much better than direct contributions, mixing them in one account is a bad idea. If you commingle, you’ll have to prove to a bankruptcy trustee which dollars came from where. Keeping a dedicated rollover IRA that never receives annual contributions is the cleanest way to preserve unlimited protection.
Outside Bankruptcy, Your State Controls
When a creditor sues you and wins a judgment, whether they can reach your IRA is a question of state law, and the answer varies dramatically.
Some states provide unlimited protection for IRAs against judgment creditors. Others cap protection at a specific dollar figure. A few protect only the amount a court finds “reasonably necessary” for the support of you and your dependents, which means a judge looks at your overall finances before deciding how much of the account is shielded. And a small number of states offer little or no explicit statutory protection for IRAs outside bankruptcy, leaving retirement savings genuinely exposed to a levy after judgment.
If a creditor tries to reach your IRA after a judgment, your usual response is to file a claim of exemption citing your state’s statute. The creditor then has to argue against it. Knowing your state’s rule before you have a problem is worth the hour it takes to look up.
Inherited IRAs Are Not Protected in Bankruptcy
An IRA you inherit from someone other than your spouse gets far less protection than one you funded yourself. In 2014, the Supreme Court held unanimously in Clark v. Rameker that inherited IRAs are not “retirement funds” under the Bankruptcy Code.3Justia U.S. Supreme Court Center. Clark v. Rameker, 573 U.S. 122 (2014)
The Court’s reasoning: a non-spouse beneficiary cannot add new contributions, must draw the account down regardless of age or retirement status, and can withdraw the entire balance at any time without the 10% early withdrawal penalty.4Oyez. Clark v. Rameker Because the money isn’t actually earmarked for the beneficiary’s retirement, it doesn’t get the exemption. A bankruptcy trustee can seize an inherited IRA to pay the beneficiary’s creditors.
Surviving spouses are treated differently. A spouse who inherits an IRA can roll it into their own IRA. Once rolled, the money gets the ordinary treatment: unlimited protection for rollover funds, or protection up to the $1,711,975 cap if it’s treated as the spouse’s own contributions.
Some states have extended their non-bankruptcy creditor protections to inherited IRAs, but coverage is inconsistent and often untested in court. If you expect to inherit a significant IRA, don’t assume it will be shielded from your creditors.
Debts That Can Reach Your IRA Anyway
Some creditors get through the exemptions because the law treats their claims as more important than preserving retirement savings.
Unpaid Federal Taxes
The IRS can levy nearly any property a taxpayer owns to collect delinquent federal taxes, and retirement accounts are not off-limits.5Internal Revenue Service. What Is a Levy The IRS doesn’t need a court order; it works through its own administrative process after sending required notices.6Internal Revenue Service. 2024 Purple Book – Protect Retirement Funds From IRS Levies
There is a practical safeguard. If a levy on your retirement account would keep you from meeting basic living expenses, you can ask the IRS to release the levy on economic hardship grounds. That requires contacting the IRS, providing detailed financial information, and documenting the hardship. Release doesn’t erase the debt; the IRS will usually set up a payment plan instead.7Internal Revenue Service. What if a Levy Is Causing a Hardship
Divorce, Child Support, and Alimony
IRA funds can be divided in a divorce and can be reached to satisfy child support and alimony. The mechanism for IRAs is not a Qualified Domestic Relations Order, which applies to employer plans under ERISA. IRAs are divided under IRC § 408(d)(6), which allows a tax-free transfer of IRA funds to a former spouse under a divorce decree or separation agreement. After the transfer, the receiving spouse treats their portion as their own IRA.
For ongoing enforcement of child support or alimony, collection typically runs through state court judgments. Most states allow garnishment of IRA funds for domestic support, and courts generally will not let IRA exemptions block those claims.
Prohibited Transactions Can Destroy the Protection Entirely
You can lose IRA protection by mishandling the account. If your IRA engages in a “prohibited transaction,” the IRS treats the account as if it stopped being an IRA on the first day of the year the transaction occurred. The entire balance is treated as distributed to you, and you owe income tax on the whole thing.8Internal Revenue Service. Retirement Topics – Prohibited Transactions
Once the account is no longer a qualified IRA, it also loses its bankruptcy exemption. A court will not protect an account the tax code no longer treats as a retirement account.
The transactions that trigger disqualification include lending money between yourself and the IRA, using IRA assets for your personal benefit, buying property from or selling property to the IRA, and using IRA funds to cover personal debts.9Office of the Law Revision Counsel. 26 U.S. Code 4975 – Tax on Prohibited Transactions Self-directed IRAs generate most of these problems because the account holder controls investment decisions directly and the line between personal and IRA assets is easy to blur. The disqualification also reaches back to the year the first prohibited transaction occurred, so years of assumed protection can vanish at once.
Where the Protection Holds and Where It Breaks
IRA protection works well against the debts most people worry about: credit cards, medical bills, personal loans, and business debts from a failed venture. In bankruptcy, the $1,711,975 cap on direct contributions plus unlimited protection for rollovers, SEP, and SIMPLE accounts means most retirement balances come through untouched. Outside bankruptcy, whether that shield holds depends on your state.
The protection breaks in predictable places. Federal taxes, domestic support, and prohibited transactions each create vulnerabilities no exemption can fix. Inherited IRAs are a blind spot most beneficiaries don’t discover until a creditor is already at the door. And the gap between strong federal bankruptcy protection and weaker state protection outside bankruptcy catches people who assume “retirement account” means “untouchable.” It doesn’t. Which category you’re in decides whether the money is safe.