Retirement accounts are protected from lawsuits to a significant degree, but the strength of that protection depends on the type of account and where you live. A 401(k) or other employer-sponsored plan is almost entirely off-limits to a private creditor under federal law. Traditional and Roth IRAs are a different story: their protection outside bankruptcy comes from state statutes that range from full immunity to almost none. And several specific claims — federal taxes, divorce orders, criminal restitution — can reach retirement money that would otherwise be safe.
401(k)s, Pensions, and Other Employer Plans
If your retirement money sits in a 401(k), 403(b), pension, or profit-sharing plan through an employer, it has the broadest creditor protection available in U.S. law. The Employee Retirement Income Security Act requires every covered plan to include a clause preventing benefits from being assigned or transferred to anyone but the participant.1Office of the Law Revision Counsel. 29 USC 1056 – Form and Payment of Benefits – Section: Assignment or Alienation of Plan Benefits That anti-alienation rule means a creditor who wins a judgment against you generally cannot garnish the account, put a lien on it, or force a distribution.
Because ERISA is federal, this works the same in all 50 states. It does not matter how large the judgment is or where the case was filed. A million-dollar personal injury verdict cannot reach money sitting inside your employer plan, and ERISA preempts the state garnishment rules that would otherwise apply to bank accounts and wages.
The shield lasts only while the money stays in the plan. Once you take a distribution and the funds hit your personal checking account, they become ordinary personal property and can be reached like any other cash. The Supreme Court confirmed the plan-level protection in Patterson v. Shumate, holding that ERISA-qualified plan benefits are also excluded from the bankruptcy estate entirely.2Legal Information Institute (LII) at Cornell Law School. Patterson v Shumate 504 US 753
Solo 401(k)s Are a Gap
If you are self-employed and your 401(k) covers only you (or you and a spouse), the ERISA anti-alienation rule may not apply. Title I of ERISA generally covers plans with common-law employees, and a truly owner-only plan can fall outside it. Outside of bankruptcy, that leaves your protection to state law, which varies widely. In bankruptcy, the Bankruptcy Code protects qualified plans even when ERISA Title I does not apply, so a bankruptcy filing tends to produce a more predictable result for solo plan holders than a state-court judgment does.
Traditional and Roth IRAs
IRAs are not governed by ERISA, so they do not carry the automatic federal shield that protects 401(k)s. Whether a creditor holding a court judgment can reach your IRA depends on the exemption law of your state. Some states fully exempt IRA balances with no dollar cap. Others protect only what a judge decides is “reasonably necessary” for your support.
In the “reasonably necessary” states, courts weigh your age, current and expected expenses, other income and assets, your ability to keep working, and obligations like child support. The goal is basic retirement security, not preservation of a prior lifestyle. A creditor could potentially reach a large portion of a substantial IRA balance under that standard. In states with weak or no IRA protection, a judgment creditor may be able to seize funds directly, and someone with $500,000 in a Traditional IRA could see the account liquidated to pay a business debt.
The practical takeaway: if most of your retirement wealth is in IRAs rather than an employer plan, check your specific state’s exemption before assuming the money is safe.
Rollover IRAs
When you leave a job and roll a 401(k) into an IRA, the rolled-over dollars keep special treatment in bankruptcy. Under 11 U.S.C. § 522(n), amounts that came from an eligible rollover out of an employer plan do not count against the IRA exemption cap, and neither do earnings on those amounts.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions A rollover IRA holding $2 million that all came from a former employer’s 401(k) stays fully protected; a contributory IRA of the same size would not.
To claim that treatment you have to prove which dollars came from where. Keeping rollover funds in a separate IRA from any account you contribute to directly makes that easy. Mixing them in one account means tracing contributions across years of statements. Outside bankruptcy, protection for rollover IRAs again turns on state law, and in states with weak IRA protections, leaving the money in a new employer’s 401(k) rather than rolling it out can be the stronger move.
What Changes in Bankruptcy
Bankruptcy runs on a separate federal framework that often produces stronger and more predictable protection than state creditor rules.
ERISA-qualified employer plans are excluded from the bankruptcy estate entirely. Section 541 of the Bankruptcy Code makes restrictions on transfer in a trust — like ERISA’s anti-alienation clause — enforceable in bankruptcy.4Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate There is no dollar cap. Several million dollars in a 401(k) can survive a bankruptcy while other debts are discharged.
Traditional and Roth IRAs get a federal bankruptcy exemption, but with a limit. The statutory base was $1,000,000, and after the most recent inflation adjustment effective April 1, 2025, the cap sits at $1,711,975.5Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases The cap applies to your combined Traditional and Roth balances after excluding funds rolled in from employer plans. A court can raise the cap if “the interests of justice so require.”3Office of the Law Revision Counsel. 11 USC 522 – Exemptions
SEP IRAs and SIMPLE IRAs are treated like employer plans and are not subject to the IRA cap; they are protected in bankruptcy without a dollar limit.
Inherited IRAs Are Not Protected the Same Way
Retirement money loses much of its protection once it passes to a beneficiary. In Clark v. Rameker, the Supreme Court held that inherited IRAs are not “retirement funds” for purposes of the federal bankruptcy exemption.6Justia Supreme Court Center. Clark v Rameker 573 US 122 (2014) The Court pointed out that a beneficiary cannot add contributions, can withdraw the whole balance at any time without the usual early withdrawal penalty, and must draw the account down.
The result: in bankruptcy, an inherited IRA can be reached in full by the trustee. Outside bankruptcy, the answer turns on state law, and only a handful of states have enacted specific protections for inherited retirement accounts. Someone who inherits a $300,000 IRA and later faces a judgment could see the whole balance seized.
Inherited interests in an ERISA-covered employer plan sit on different ground. Their protection comes from the plan’s anti-alienation clause, not from the “retirement funds” exemption that Clark interpreted, so an inherited ERISA account should remain protected.
Claims That Can Reach Even Protected Accounts
Several specific claims cut through retirement account protections that would otherwise stop a private creditor.
Federal Taxes
The IRS can levy on essentially any property of a taxpayer who owes back taxes. Retirement accounts are not on the statutory list of property exempt from IRS levy.7Office of the Law Revision Counsel. 26 USC 6334 – Property Exempt From Levy Internal IRS policy calls for a finding of “flagrant conduct” — for example, continuing to make voluntary retirement contributions while pleading inability to pay — before levying a retirement account, but that is an internal guideline, not a legal right of the taxpayer.
Divorce and Support Orders
A Qualified Domestic Relations Order (QDRO) is a court order issued under state domestic relations law directing a plan to pay part of a participant’s benefits to a spouse, former spouse, child, or dependent for child support, alimony, or property division.8Internal Revenue Service. Retirement Topics – QDRO Qualified Domestic Relations Order ERISA expressly says payments under a QDRO are not violations of the anti-alienation rule.9Office of the Law Revision Counsel. 29 USC 1056 – Form and Payment of Benefits A divorce court can split a 401(k) or pension regardless of the account’s otherwise protected status.
Criminal Restitution and Federal Fines
Federal appellate courts have held that the Mandatory Victims Restitution Act allows the government to garnish ERISA-protected retirement accounts to pay court-ordered restitution. The government’s interest in compensating crime victims overrides the anti-alienation rule that blocks private creditors.
Prohibited Transactions in Self-Directed IRAs
If you engage in a prohibited transaction with your IRA — using it to buy property you personally live in, lending its funds to yourself, or doing business between the IRA and a related party — the account loses its IRA status as of the first day of that tax year.10Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The IRS treats the full balance as distributed to you on that date, with income tax and possible early withdrawal penalties on the whole amount.11Internal Revenue Service. Retirement Topics – Prohibited Transactions Once the account is no longer an IRA, it loses the creditor protections that IRA status provided. The risk shows up mainly in self-directed IRAs, where the account holder makes investment decisions directly.
Moving Money in Right Before a Lawsuit
Retirement account protection does not cover contributions made to hide assets from a specific creditor. A court can reverse a transfer made with intent to defraud creditors. In bankruptcy, a trustee can void a transfer made within two years of the filing if the purpose was to hinder or defraud creditors, and the lookback stretches to ten years for transfers to self-settled trusts and similar arrangements.12Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations Outside bankruptcy, most states have voidable-transaction laws that reach the same behavior.
Consistent contributions made over years as part of an ordinary savings plan are fine. A sudden, large deposit made right after you learn about a lawsuit is a different matter, and can be unwound — and can damage your credibility with the judge weighing the rest of your case.