IRA

[Guest elang]

Do IRA's have the same creditor protection as a qualified plan? If so, how about EZ filers?

[ETA Consulting LLC]

Do IRA's have the same creditor protection as a qualified plan? If so, how about EZ filers?

No. Qualified Plans that are subject to ERISA are excluded from a bankruptcy estate and protected against anti-assignment for non-bankruptcy issues. This is the highest level of protection (ERISA). For EZ plans, you have no ERISA protection. I've always recommended the owner put a child on the payroll and make the child a part of the plan in order to ensure ERISA protection. This is all Federal Law.

IRAs have many other facets, depending on the laws of the State the IRA is issued in. We know there is protection in bankruptcy since certain IRA amounts are exempted from the bankruptcy estate. Remember, excluded and exempt are different. The issue comes into play when when go outside of bankruptcy.

This is only the beginning to answering your question.

Good Luck!

[mbozek]

Do IRA's have the same creditor protection as a qualified plan? If so, how about EZ filers?

IRAs have protections similar to the protections afforded to qualified plans in the event of bankruptcy of the participant. Only exception is that the total assets of traditional and ROTh IRAs are exempted from bankruptcy creditors up to $1,093,000 whereas other types of IRAs, e.g., rollovers, SEPs and Simples have unlimited protection from bankruptcy creditors.

However, protection of all IRAs from claims of general creditors depends on state law. For example, NJ protects all IRAs from general creditors regardless of amount but CA only exempts 100k automatically. Higher amounts are exempted if there is need.

IRAs issued in states that do not provide protection of the account from general creditors should be able to attain protection from general creditors in the owner's state if the IRA is governed by the laws of a state that provides 100% protection against alienation by any creditor. For example, if an IRA issued by X mutual fund is governed by the laws of New Jersey and provides that to the extent protected by law the IRA assets are not subject to the claims of creditors, then a resident of CA who adopts X's IRA could claim exemption of the entire IRA above 100k from the claims of a general creditor because under the full faith and credit clause of the US constitution the IRA is protected by NJ law.