Garnishment of IRA and 401(k) Plans

[Guest chickbull]

Can retirement plans be legally used for garnishment?

[Lou S.]

Under 401(a)(13)(A) generally no.

There are some exceptions for QDROs - 401(a)(13)(B)

And some for "Certian Judgmnets and Settelments" 401(a)(13)© - if the garnishments is for one of these specific execptions then yes; if it is not then no.

[Guest mjb]

Can retirement plans be legally used for garnishment?

what kind of garnishment are your thinking of? bankruptcy, claims by a judgment creditor, tax liens, restitution, fines or something else?

[Guest chickbull]

Can retirement plans be legally used for garnishment?

what kind of garnishment are your thinking of? bankruptcy, claims by a judgment creditor, tax liens, restitution, fines or something else?

bankruptcy, claims by a judgment creditor

[Guest BruceC]

Can retirement plans be legally used for garnishment?

what kind of garnishment are your thinking of? bankruptcy, claims by a judgment creditor, tax liens, restitution, fines or something else?

bankruptcy, claims by a judgment creditor

As noted, only QDRO (former spouses) and liens filed by the IRS for non-payment of taxes within the previous 3 years may invade a qualified retirement plan. Otherwise, safe from creditors.

And if you don't believe this, call and chat with O.J. Simpson about his purported $400,000 annual NFL pension.

BruceM

[Guest mjb]

Can retirement plans be legally used for garnishment?

what kind of garnishment are your thinking of? bankruptcy, claims by a judgment creditor, tax liens, restitution, fines or something else?

bankruptcy, claims by a judgment creditor

There are different rules for different types of plans and creditors.

Qualified plans

All benefits under qualified plans subject to ERISA are protected from both bankruptcy and general creditors while they are held in the plan. However retirement benefits are subject to claims by the IRS for back taxes or by the federal government for restitution or fines under various federal laws if the benefits are payable to the participant. (I am not aware of any 3 year limitation). Benefits are subject to claims by spouses under a QDRO.

If the qualified plan is not subject to ERISA (e.g., plan only covers owner and spouse) the benefits are protected to the same extent as plans subject to ERISA with one exception: benefits are subject to the claims of general creditors unless there is a state law protecting retirement benefits from attachment.

While ERISA does not protect retirement benefits from attachment by creditors after they are paid to the employee, there are many states that provide such protection (NJ). You need to check the state laws.

IRAs

IRAs are protected from bankruptcy creditors under two separate provisions: (1) The entire account balance of all IRAs attributable to a rollover from a qualified plan, SEP or a SIMPLE from seizure. (2) All IRA accounts attributable to deductible or Roth contributions are exempt from bankruptcy creditors up to an aggregate amount of $1,093,000.

All IRA accounts are protected from general creditors to the extent permitted under state law. Some states (NJ) prohibit seizure of IRA assets by general creditors for any reason except fraudlent transfers even after the benefits are paid to the owner. IRAs can be seized by the IRS for back taxes or by the federal government for restitution under the same conditions as qualified plans. IRAs can also be divided in a tax free transfer on account of divorce.