Rollover IRA creditor protection is strong but uneven: money you rolled over from a 401(k), 403(b), or similar employer plan into an IRA is shielded without any dollar cap in federal bankruptcy, while protection outside bankruptcy depends entirely on the state you live in. The single most important distinction is between rollover dollars and money you contributed to an IRA yourself. Rollover funds carry the unlimited protection of the employer plan they came from; your own contributions are capped. And several exceptions can reach the account regardless of which forum the creditor is in.
Unlimited Protection in Federal Bankruptcy
If you file Chapter 7 or Chapter 13, funds rolled over from a qualified employer plan into an IRA are exempt from the bankruptcy estate with no dollar limit under 11 U.S.C. § 522.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions The money in the original 401(k) or 403(b) was already excluded from the estate because ERISA’s anti-alienation rules apply to it,2Office of the Law Revision Counsel. 11 U.S. Code 541 – Property of the Estate and the rollover carries that character into the IRA. A $3 million rollover is just as protected as a $30,000 one.
Money you contributed directly to a traditional or Roth IRA sits under a separate rule. Those contributions are exempt only up to an aggregate cap that adjusts every three years. For bankruptcy petitions filed between April 2025 and early 2028, the cap is $1,711,975.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions Anything above that from your own contributions becomes available to creditors. Most filers never approach the cap, but long-time contributors with large balances can.
SEP and SIMPLE IRAs are treated like rollover funds for this purpose. Because they are employer-sponsored arrangements under IRC sections 408(k) and 408(p), the per-person contribution cap does not apply.
One caveat matters a lot: this protection only exists once you actually file bankruptcy. A creditor who sues you in state court and wins a judgment is operating under a different set of rules.
State Law Governs Outside Bankruptcy
When a creditor pursues you through a state court judgment, garnishment, or lien, federal bankruptcy exemptions do not apply. State law controls, and it varies widely.
Broadly, states fall into three groups. Some shield all IRA assets without a dollar cap. Others protect IRA funds only up to a statutory amount, which might be $100,000, $500,000, or some other figure unrelated to the federal cap. A smaller group tracks the federal bankruptcy framework for state collection proceedings.
The gap between forums can be substantial. Imagine a $2 million Rollover IRA in a state that caps IRA protection at $500,000. In bankruptcy, the whole balance is exempt. In state court, $1.5 million could be reachable. Some state statutes draw the same rollover-versus-contributory line that federal law does and give rollover funds unlimited protection; others treat all IRA money the same under a single cap. Read the exemption statute in your state carefully, and look specifically for whether rollovers are called out.
Your state of residence at the time collection is attempted controls which rules apply. For bankruptcy purposes, courts generally look at where you lived during the 730 days before filing.
Keep Rollover Money in Its Own Account
Mixing rollover dollars with your own annual IRA contributions in the same account is one of the fastest ways to lose the unlimited protection the rollover carries. Once the two sources are combined, you bear the burden of proving which dollars came from the qualified plan.
Courts can apply tracing methods to sort commingled funds, but those methods assume clean records and a limited number of transactions. In an account with decades of contributions, withdrawals, and investment gains layered together, a court may give up on tracing and apply the lower contributory IRA cap to the whole balance.
The practical fix is to maintain two IRAs. One is a dedicated Rollover IRA that receives only trustee-to-trustee transfers from qualified employer plans. The other holds your annual traditional or Roth contributions. Do not move money between them.
Keep the paperwork that proves the rollover origin: the Form 1099-R from the employer plan, the transfer statements from the IRA custodian, and the account opening documents that identify the account as a rollover. If a creditor ever challenges the account’s protected status, those records are the defense.
How You Move the Money Matters
A direct rollover, where the funds pass trustee-to-trustee without touching your personal account, gives you a clean, documented chain of custody. The rollover character is easy to prove later.
An indirect rollover complicates that record. The plan distributes the funds to you, withholds 20% for taxes, and you have 60 days to deposit the full amount into an IRA using other money to replace the withholding. The legal character of the funds does not change, but the tracing argument gets harder, and if you miss the 60-day window the distribution becomes taxable income and loses its rollover status entirely. For creditor protection, a direct trustee-to-trustee transfer is the straightforward choice.
What Can Reach Your Rollover IRA Anyway
Several categories of claims cut through the normal exemptions in both forums.
IRS Levies for Unpaid Federal Taxes
The IRS can levy your Rollover IRA to collect federal tax debts. Section 6331 of the Internal Revenue Code authorizes levy on “all property and rights to property” of a delinquent taxpayer,3Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint and retirement accounts are not among the items exempt from levy under § 6334.4Office of the Law Revision Counsel. 26 USC 6334 – Property Exempt From Levy State exemption laws do not bind the IRS, and neither do the federal bankruptcy exemptions.
Internal IRS policy instructs revenue officers to find “flagrant conduct” before levying retirement accounts, such as continuing to make voluntary retirement contributions while claiming inability to pay a tax bill.5Internal Revenue Service. IRS Procedures for Levies on Retirement Plan Assets That is a procedural check, not a legal limit on the agency’s authority.
Child Support and Alimony
Domestic support obligations can reach IRA funds. State courts regularly divide IRA assets in divorce and direct IRA funds toward support orders. A valid support judgment overrides the ordinary creditor exemption.
Federal Criminal Restitution
Restitution ordered under the Mandatory Victims Restitution Act uses “notwithstanding any other provision of law” language that courts read as overriding retirement account protections.6Office of the Law Revision Counsel. 18 U.S. Code 3663A – Mandatory Restitution to Victims of Certain Crimes A federal conviction for a covered offense can lead to payment orders drawn from retirement savings.
Fraudulent Transfers
Moving assets into an IRA to put them out of reach of existing creditors invites a fraudulent transfer challenge. A bankruptcy trustee can unwind transfers made with intent to hinder or defraud creditors under 11 U.S.C. § 548, with a lookback period that extends to ten years for self-settled trusts and similar devices.7Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations Outside bankruptcy, most states have adopted some version of the Uniform Voidable Transactions Act. The pattern creditors argue is familiar: you were insolvent or facing claims, you moved money into a protected account, and the timing suggests the purpose was to keep that money from them.
Prohibited Transactions That Disqualify the Account
Some IRA transactions destroy the account’s tax-advantaged status entirely, and the creditor protection goes with it. Under IRC § 408(e)(2), a prohibited transaction by the account owner or a disqualified person causes the IRA to stop being an IRA as of the first day of that tax year.8Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts The IRS treats the full balance as distributed on that date, which eliminates the legal basis for any creditor exemption.
The IRS lists common prohibited transactions, including borrowing from the account (IRAs do not permit loans), pledging the account as collateral for a personal loan, buying property for personal use with IRA funds, and selling your own property into the IRA.9Internal Revenue Service. Retirement Topics – Prohibited Transactions Disqualified persons include your spouse, parents, children, and their spouses. The disqualification hits the whole account, not just the dollars involved in the bad transaction. A single $5,000 misstep can wipe out protection on a $500,000 balance. The risk runs highest in self-directed IRAs, where owners make investment decisions themselves.
Inherited Rollover IRAs
If you inherit a Rollover IRA from someone other than your spouse, the federal bankruptcy protection largely disappears. In Clark v. Rameker (2014), the Supreme Court held that inherited IRAs are not “retirement funds” under the Bankruptcy Code because the beneficiary can withdraw the entire balance at any time without penalty, cannot contribute new money, and must take required distributions regardless of age.10Justia US Supreme Court. Clark v. Rameker, 573 U.S. 122 (2014)
A surviving spouse has an option other beneficiaries lack: rolling the inherited IRA into the spouse’s own IRA. Once that happens, the funds are treated like any other IRA, and rollover dollars keep their unlimited bankruptcy exemption. A surviving spouse who instead keeps the account as an inherited IRA, sometimes done to avoid the 10% early withdrawal penalty before 59½, is in uncertain territory; Clark did not directly address that situation, but the Court’s reasoning fits it.
Some states have passed statutes that specifically protect inherited IRAs in non-bankruptcy proceedings. Others have not. For a non-spouse beneficiary with a significant inherited balance, state exemption law is often the only shield left.
Excess Contributions
Amounts contributed above the annual limits are not legitimate retirement assets. Excess contributions that are not timely corrected face double taxation and do not carry the same protected status as proper contributions.11Internal Revenue Service. Consequences to a Participant Who Makes Excess Annual Salary Deferrals For rollovers, the analogous problem is rolling over more than you were entitled to, such as amounts that should have been corrected as excess deferrals in the employer plan before the transfer.