Basic Retirement Account Rules Under Bunkruptcy


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Under the new rules of BAPCPA, virtually all types of retirement accounts are now exempt assets in bankruptcy proceedings. This was accomplished by adding a provision creating a new exemption for “retirement funds” to the extent that those funds are in a fund or account that is exempt from taxation under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code.” This covers 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs (including SEP, SIMPLE plans, Roth), as well as defined-benefit plans. (There are limitations as described below). But nonqualified annuities, although tax-deferred and ostensibly for retirement, will not be protected under these provisions since the applicable Section 72 is not listed (although qualified annuities will still be protected under the applicable IRA or qualified plan section). Many states have rules that give protection to nonqualified annuities.

To greatly aid simplification for debtors, the provisions exempting retirement plans of all types were added to the existing code twice—once in the list of federal exemptions, and again as one of the add-ons applicable to all states that opt out for their own state exemptions. Consequently, this blanket protection for all types of retirement accounts applies regardless of whether the debtor is eligible (or required) to use the federal or state exemptions—because the relevant protection was added in each applicable section of the law, it should apply in either case.

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