Retirement Assets

Scope of the chapter. For many clients, retirement accounts are the largest liquid asset and the best protected. Federal law protects employer-sponsored qualified plans with an anti-alienation rule that few creditors can overcome, and federal and state law protect individual retirement accounts to a lesser and more variable degree. This chapter examines the protection of qualified plans, IRAs, inherited accounts, nonqualified deferred compensation and distributions, and the planning questions they raise: how much may be contributed, when contributions become vulnerable, how the protection is lost and how retirement assets should be coordinated with the rest of the plan.

Why retirement assets matter. Retirement protection has three advantages that no other building block combines. It is grounded in federal law that preempts contrary state law for the most protected plans. It accompanies a tax benefit that clients want for its own sake, so contributions carry a strong record of legitimate purpose. And it is built gradually by regular contributions over a working life, the pattern that best resists a challenge (see supra ¶ 1270.05). For a professional at the beginning of a career, maximizing qualified-plan contributions is often the most effective protective step available.

How to read the chapter. Paragraph 1310 examines ERISA-qualified plans. Paragraph 1320 addresses IRAs in and out of bankruptcy, and ¶ 1330 inherited accounts. Paragraph 1340 covers distributions, ¶ 1350 nonqualified deferred compensation, and ¶ 1360 the ways protection is lost, including prohibited transactions. Paragraph 1370 addresses family claimants, ¶ 1380 foreign and cross-border retirement assets, and ¶ 1390 the place of retirement assets in the Threat Matrix.

The retirement inventory. The planner should prepare, at intake, an inventory of every retirement interest the client and spouse hold. For each account the inventory records the plan or account type; the sponsor or custodian; whether the plan is subject to ERISA; the balance, divided where relevant between rollover and contributory amounts; the beneficiary designation and the date it was signed; any outstanding loans; any self-directed investments; and the state whose exemption would govern it outside bankruptcy. Clients rarely know all of these facts. Plan summaries, account statements, beneficiary confirmations and the plan’s annual Form 5500 filings supply most of them. A one-participant plan files Form 5500-EZ, and need not file at all for a year in which its assets, together with those of the employer’s other one-participant plans, do not exceed $250,000. I.R.S., Instructions for Form 5500-EZ (2025). The inventory exposes the common problems at once: an owner-only plan that the client assumes is protected by ERISA, a rollover IRA commingled with contributions, a beneficiary designation naming a former spouse or the estate, and a checkbook IRA administered without discipline.

Sources of protection. Retirement assets draw their protection from four bodies of law, and an account may be protected by one and exposed under another.

The planner should identify, for each account, which source protects it in which proceeding. The common error is to assume that an account protected in bankruptcy is protected against a judgment creditor outside it, or the reverse.