High Earners Turn To 401(k)s For Stronger Asset Protection From Creditors

For professionals in litigation-exposed fields, the difference between a 401(k) and an Individual Retirement Account is not just tax-related; it is a legal distinction that can affect asset protection. Under the Employee Retirement Income Security Act (ERISA), qualified 401(k) plans generally receive strong federal creditor protection under mandatory anti-alienation rules, typically shielding assets from most creditor claims, including lawsuits and business-related judgments, with limited exceptions such as domestic relations orders. IRAs are treated differently under federal bankruptcy rules. Retirement funds held in IRAs are protected in bankruptcy up to a statutory cap of $1 million, with that amount adjusted periodically for inflation, bringing the effective limit to roughly $1.7 million today. Any balance above that threshold may not be fully protected in bankruptcy proceedings. Outside bankruptcy, IRA protections depend on state law, which varies widely and can be significantly weaker in some jurisdictions. Full story available on Benzinga.com