Not all retirement accounts get the same protection if you ever file bankruptcy — and the gap between the best-protected and worst-protected account types is large enough that it’s worth knowing before a crisis forces the question.
ERISA-Qualified Plans: No Dollar Cap
401(k)s, 403(b)s, traditional pensions, and cash balance plans that are covered by ERISA get unlimited protection in federal bankruptcy — the bankruptcy code excludes ERISA-qualified retirement funds from the bankruptcy estate entirely, with no dollar limit on the exemption, as long as the money stays inside the qualified plan.
IRAs: A Real, Specific Dollar Cap
IRAs get meaningfully less protection. The federal bankruptcy exemption for IRAs is capped at a specific inflation-adjusted figure — $1,711,975 per filer as of the most recent adjustment. That’s a genuinely large number for most savers, but it is a hard cap, unlike the unlimited ERISA exemption, and it applies to the combined value of your Traditional and Roth IRAs together, not per account.
The Rollover IRA Exception
A rollover IRA funded entirely from a prior ERISA-qualified plan carries over that plan’s unlimited protection, rather than the capped IRA exemption — but only as long as the rollover funds stay separate from new contributory dollars. Commingling a rollover IRA with regular annual IRA contributions collapses the entire account back into the capped exemption, even the portion that originated from the fully protected 401(k). Keeping a rollover IRA in its own separate account, never adding new contributions to it, is what preserves the unlimited protection.
SEP-IRAs and SIMPLE IRAs Fall Under the Cap, Not the Unlimited Exemption
This is the distinction that catches self-employed people off guard: a SEP-IRA or SIMPLE IRA is legally an IRA for bankruptcy-exemption purposes, not an ERISA plan, even though it functions like a small-business retirement plan. That means it falls under the capped $1,711,975 exemption, not the unlimited ERISA protection a 401(k) gets — relevant context alongside our Solo 401(k) vs. SEP-IRA guide, since asset-protection strength is one more real difference between the two beyond the tax mechanics already covered there.
Inherited IRAs Get No Special Federal Protection
The U.S. Supreme Court ruled in Clark v. Rameker that an inherited IRA is not protected by the federal bankruptcy exemption at all, reasoning that inherited funds don’t carry the same “retirement savings” character as an account you built yourself — relevant to anyone who’s received a balance under the rules in our Inherited IRA 10-Year Rule guide. Some states provide their own independent protection for inherited IRAs outside of federal bankruptcy law, so the real answer depends on where you live.
This Is Bankruptcy-Specific, Not General Creditor Protection
Everything above applies specifically inside a bankruptcy filing. Protection from a lawsuit judgment or ordinary creditor outside of bankruptcy is governed by state law instead, and varies significantly — some states protect IRAs as strongly as 401(k)s outside bankruptcy, others don’t. Don’t assume the bankruptcy rule and the general creditor-protection rule in your state are the same thing.
The Bottom Line
If asset protection is a real concern, keeping money in an ERISA-qualified 401(k) or pension for as long as possible, and keeping any rollover IRA strictly uncommingled with new contributions, preserves meaningfully stronger protection than a SEP-IRA, SIMPLE IRA, or a commingled rollover account would.
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