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Creditor protection for your 401(k)

Posted by Andrew Chan  October 29, 2009 10:40 AM

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Are funds in my 401(k) plan protected from creditors if I file personal bankruptcy?

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (a.k.a. the Bankruptcy Reform Act) tax-exempt retirement plan accounts (including qualified plans, traditional IRAs, Roth IRAs, 403(b) plans, 457(b) plans, SEPs, and SIMPLE plans), are protected from an employee's creditors in the event of bankruptcy. With the exception of the Traditional IRA and Roth IRA assets, all of these tax-exempt retirement assets are protected without a dollar limit.

Traditional IRAs and Roth IRAs are protected up to $1 million dollars under the federal law. However, some states may provide additional protection beyond the federal limits. Additionally, the language in the federal law seems to suggest that any funds rolled over from an employer retirement plan are fully protected even if the amount exceeds the $1 million dollar limit.

Keep in mind that there are exceptions to the protection provided under the Bankruptcy Reform Act. Certain liens and debts are not discharged or fully discharged under this law. These include:

• Tax liens,
• Debts for luxury goods/services,
• Cash advances,
• Judgments against you for death or injury caused while intoxicated,
• Domestic support obligations,
• Educational loans,
• Debts incurred to pay taxes, fines and penalties,
• Debts from divorce or separation,
• Homeowner association, condominium, and cooperative fees,
• Fees on prisoners,
• Pension or profit sharing debts, and
• Debts or liens incurred from interference with lawful provision of services.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of, a credit card and gift card marketplace, and, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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