Protection Varies by State and Type of Plan

Most people assume that the assets in an IRA are 100% protected from Creditors.  Almost everyone remembers that the NFL Pension assets of accused murderer and ex-football star O.J. Simpson were protected against a civil action by the family of his ex-wife. His plan was a Qualifed Plan and not an IRA and the pension assets he had accumulated as a player were protected from garnishment in that suit. Your legal and/or tax professionals should be familiar or get familiar with State statutes that may override Federal protections in certain, limited situations.

Asset protection of pensions includes some gray areas of the law and the treatment of retirement assets is affected by several factors. The Bankruptcy Reform Act of 2005 provided a good deal of clarification regarding access to assets in both Qualified and Non-Qualified Plans. There is also a useful discussion of asset protection in various plans at: http://www.petershannonco.com/timely_tax_topics2.htm .

The two primary considerations are:
1. If the plan is a Qualified Plan, subject to Federal ERISA rules
2. The treatment of Non-Qualified Plans (IRA's and Roth IRA's) is subject to the interperetation by the State Government where the IRA plan holder lives.

In California, information on the treatment of plan assets can be found at: http://www.journalofaccountancy.com/Issues/2006/Jan/ProtectRetirementAssets.htm .  The chart below summarizes the treatment of plan assets under federal and state law.  Please note that there are exceptions to exemptions for QDROS and other situations.

While the Bankruptcy Reform Act of 2005 did clarify and appears to have improved the asset protection for Non-Qualified Plans, the protection is not absolute.