Individual retirement accounts are protected from creditors in most situations, but the protection is not absolute. How much of your IRA is safe depends on four things: whether you are in bankruptcy or facing an ordinary civil judgment, what type of IRA you hold, where the money in it came from, and who the creditor is. In federal bankruptcy, traditional and Roth IRA balances are shielded up to $1,711,975 for money you contributed directly, while funds rolled over from an employer plan are protected without any dollar limit. Outside bankruptcy, protection is set by state law and varies widely. A short list of creditors, including the IRS and a former spouse owed support, can reach IRA funds regardless.
IRA Protection in Bankruptcy
When you file Chapter 7 or Chapter 13, federal law exempts most IRA assets from the bankruptcy estate. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added a provision to the Bankruptcy Code that treats tax-qualified retirement funds as exempt, including accounts under Internal Revenue Code sections 408 (traditional IRAs) and 408A (Roth IRAs).1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
For money you contributed directly to a traditional or Roth IRA, the exemption is capped. As of April 1, 2025, the cap is $1,711,975, and it adjusts for inflation every three years.2United States Courts. Exemptions (Schedule C) Effective April 2025 The cap is aggregate across all of your traditional and Roth IRAs combined, not per account. Anything above the cap from direct contributions is reachable by a bankruptcy trustee to pay creditors.
This federal exemption applies in every state, including states that normally require debtors to use state exemption lists. Congress wrote it as a floor that states cannot push below in bankruptcy.
Rollover Funds Have No Dollar Limit
The $1,711,975 cap applies only to money you contributed directly. Funds rolled over from an employer-sponsored plan — a 401(k), 403(b), or governmental 457(b) — are excluded from the cap calculation entirely. The statute disregards “amounts attributable to rollover contributions” and the earnings on them.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
The reasoning is that employer plans were already fully protected under ERISA with no dollar cap, and rolling that money into an IRA when you change jobs shouldn’t strip away protection you already had. So whether your rollover IRA holds $50,000 or $5 million, the full balance is exempt in bankruptcy.
This makes it worth keeping rollover money separate from annual IRA contributions. If you mix them in one account, you’ll have to document which portion came from the rollover, and the burden of proof falls on you. The simplest protection is a dedicated rollover IRA that you never add fresh contributions to.
SEP and SIMPLE IRAs
SEP IRAs and SIMPLE IRAs get better treatment than regular traditional or Roth IRAs. The dollar cap in the Bankruptcy Code specifically excludes “a simplified employee pension under section 408(k)” and “a simple retirement account under section 408(p).”1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions Because the cap doesn’t apply, SEP and SIMPLE IRA balances get unlimited federal bankruptcy protection, like 401(k)s. Self-employed people and small-business owners who fund SEP IRAs heavily don’t need to worry about the cap.
Outside Bankruptcy, State Law Controls
If a creditor sues you in civil court, wins a judgment, and tries to collect, the federal bankruptcy exemption does not apply. Your protection depends entirely on the state you live in, and the differences are large.
Some states give IRAs unlimited protection against judgment creditors. In those states, a creditor with a civil judgment generally cannot reach your IRA no matter how big it is. Other states cap protection at a specific dollar figure. A few protect only the amount a court considers reasonably necessary for your support and your dependents’, meaning a judge looks at your whole financial picture and decides how much is shielded. And a small number of states offer little or no explicit statutory protection outside bankruptcy, which leaves retirement savings exposed to a creditor levy after a judgment.
If a creditor tries to levy your IRA, the typical defense is to file a claim of exemption with the court, citing the state statute that shields the funds. Knowing what your state’s statute actually says, before a problem arises, is worth doing. Someone with a million-dollar IRA in a state with unlimited protection is in a very different position from someone with the same balance in a state that offers little.
Inherited IRAs Are Not Protected the Same Way
An IRA you inherit from someone other than your spouse gets far weaker protection than one you built yourself. In Clark v. Rameker, the Supreme Court held unanimously in 2014 that inherited IRAs are not “retirement funds” under the Bankruptcy Code.3Justia U.S. Supreme Court Center. Clark v. Rameker, 573 U.S. 122 (2014)
The Court pointed out that a non-spouse beneficiary cannot add contributions, must draw the account down regardless of age or retirement status, and can withdraw the entire balance at any time without the 10% early-withdrawal penalty.4Oyez. Clark v. Rameker Because the money isn’t actually set aside for the beneficiary’s retirement, it doesn’t qualify as retirement funds, and a bankruptcy trustee can seize it to pay the beneficiary’s creditors.
A surviving spouse is in a different position. A spouse who inherits an IRA can roll the funds into their own IRA, which converts the account into a personal retirement account that then qualifies for the usual protections.
Some states have passed laws extending their non-bankruptcy creditor protections to inherited IRAs, filling part of the gap left by Clark. But state coverage for inherited IRAs is inconsistent and often untested. If you expect to inherit a significant IRA, don’t assume it will be shielded from your own creditors.
Creditors Who Can Reach Your IRA Anyway
A few creditors can get to IRA funds regardless of federal or state exemptions.
The IRS
The IRS has broad authority to levy virtually all property belonging to a taxpayer with delinquent federal taxes, and retirement accounts are not excluded.5Internal Revenue Service. What Is a Levy Federal tax law overrides the creditor protections that would otherwise shield an IRA, and the IRS does not need a court order; it follows its own administrative process after giving the required notices.6Internal Revenue Service. 2024 Purple Book – Protect Retirement Funds From IRS Levies
There is one practical safeguard. If a levy on your retirement account would stop you from meeting basic living expenses, the IRS can release the levy on economic hardship grounds. You have to contact the IRS, provide detailed financial information, and show the hardship. Releasing the levy doesn’t forgive the debt; the IRS will typically set up a payment plan instead.7Internal Revenue Service. What if a Levy Is Causing a Hardship
Divorce, Child Support, and Alimony
IRA funds can be divided in a divorce and tapped to satisfy child support and alimony. In a divorce, an IRA is split through a tax-free transfer to the former spouse under IRC § 408(d)(6), pursuant to a divorce decree or separation agreement; after the transfer, the receiving spouse’s portion is treated as their own IRA.
For enforcing ongoing child support or alimony, collection usually runs through state court judgments. Most states allow garnishment of IRA funds for domestic support obligations, and courts generally do not let IRA exemptions block that collection.
How You Can Lose Protection on Your Own
Even a properly funded IRA can lose its protected status if you engage in a prohibited transaction. The IRS treats an IRA that participates in a prohibited transaction as if it stopped being an IRA on the first day of the year the transaction occurred, and the entire balance is treated as distributed to you — triggering income tax on the whole amount.8Internal Revenue Service. Retirement Topics – Prohibited Transactions Once the account is no longer a qualified IRA under the tax code, it also loses its bankruptcy exemption.
Transactions that trigger disqualification include lending money between yourself and the IRA, using IRA assets for your personal benefit, buying property from or selling property to the IRA, and using IRA funds to cover personal debts.9Office of the Law Revision Counsel. 26 U.S. Code 4975 – Tax on Prohibited Transactions Self-directed IRAs are the usual source of these problems because the account holder makes the investment decisions directly. The disqualification can reach back to the year of the first prohibited transaction and can affect other IRAs that later received funds from the tainted account, wiping out years of assumed protection.
What All of This Adds Up To
IRA protection works well against the debts most people worry about — credit cards, medical bills, personal loans, and business debts from a failed venture. In bankruptcy, the combination of the $1,711,975 cap on direct contributions and unlimited protection on rollovers means most people’s retirement savings come through intact. Outside bankruptcy, how strong that shield is depends on where you live.
The protection breaks down in predictable places. Federal taxes, domestic support, and prohibited transactions each open vulnerabilities that no exemption cures. Inherited IRAs are a blind spot many beneficiaries don’t learn about until a creditor is already involved. And the gap between strong federal bankruptcy protection and weaker state-level protection outside bankruptcy catches people who assume an IRA is untouchable just because it’s labeled retirement. Knowing which category you’re actually in is what separates keeping your retirement savings from losing them.