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Self-Directed IRA

Asset & Creditor Protection for Self-Directed IRA LLC

Why Asset & Creditor Protection is Necessary

Why Asset & Creditor Protection is Necessary

Asset & creditor protection for a Self-directed IRA LLC is a form of guarding your wealth, which is why it’s so valuable for your Self-Directed IRA. After all, retirement accounts hold several of Americans’ most valuable assets. It’s important to protect your IRA funds from creditors, including people who have won lawsuits against you. Generally, the asset/creditor protection strategies available to you depend on the type of retirement account you own. Is your retirement account Traditional, an IRA or 401(k) qualified plan? Each of these retirement accounts are subject to different Asset & Creditor Protection for Self-Directed IRA LLC strategies.

IRA Protection From Creditors by State

IRA Protection From Creditors by State

Are IRAs protected from creditors?

The creditor protection for each retirement plan depends on your state residency, and whether the assets are yours or if you inherited them. You will find the asset & creditor protection by state for a Self-Directed IRA below. You will find IRA protection for California, Florida, New York – all 50 states. IRA Asset Protection, also known as IRA Creditor Protection or IRA Bankruptcy Protection, can help protect the assets in your IRA from lawsuits, creditors, liens and more. The best advice is to protect your assets prior to any claims or liabilities. Often, it’s too late to protect yourself when a claim occurs.

Asset & Creditor Protection for Self-Directed IRA LLC by IRA Financial Group

As you may know, when using a Self-Directed IRA LLC,  you have the opportunity to make a wide range of investments: both traditional and non-traditional. Additionally, you receive stronger asset and creditor protection. Thus, by using an LLC that your IRA completely owns (the Self-Directed IRALLC structure), you gain another layer of limited liability protection. For example, if you use a Self-Directed IRA LLC to make investments, you have better asset and creditor protection vs making the investment yourself. Because of this, it’s wise to invest and grow your retirement funds in a Self-Directed IRA LLC. It will protect your retirement assets from creditors, inside or outside of bankruptcy.

IRA’s Federal Protection for Bankruptcy

Similar to 401(k) qualified plans, there's The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or the “Act”). It became effective for bankruptcies that filed after October 17, 2005, and gave protection to debtor’s IRA funds. This was done by exempting IRA funds from the bankruptcy estate, or in other words, by exempting most unsecured business and consumer debts. An unsecured debt is essentially a loan that is not backed by an underlying asset. The general exemption pro­vides an unlimited exemption for IRAs under section 408 and Roth IRAs under section 408A.

Traditional and Roth IRAs that a debtor creates and funds are subject to an exemp­tion limitation of $1 million in full for all such IRAs. This is adjusted for inflation and can increase if the bankruptcy judge determines that the increase is justified.

A rollover from an SEP or SIMPLE IRA into a rollover IRA receives only $1 million of protection. This is because section 408(d)(3) rollover is not one of the rollovers the Bankruptcy Code section 522(n) approves.

Protection of IRAs from Creditors Outside of Bankruptcy

In general, ERISA pension plans, such as 401(k) qualified plans, are afforded extensive anti-alienation credi­tor protection. This means that pension plan benefits will not go to a creditor. And if the pension plan must pay creditors, it loses it’s good tax status. This is both inside and outside of bankrupt­cy. However, these extensive anti-alienation protections do not extend to an IRA. And this includes a Self-Directed IRA arrangement under Code section 408. Therefore, since an individually estab­lished and funded Traditional or Roth IRA is not an ERISA pension plan, IRAs are not preempted un­der ERISA. Thus, for anything short of bankruptcy, state law determines whether IRAs (including Roth IRAs) will receive protection from creditors’ claims.

It’s important to noteon June 12, 2014, the Supreme Court unanimously upheld a Seventh Circuit decision that said inherited IRAs do not enjoy the protections of IRAs in bankruptcy proceedings.

Summary: State Protections for IRAs

Summary: State Protections for IRAs

The following table will provide a summary of state protection that IRAs receive, including Self-Directed IRAs, from creditors outside of the bankruptcy context.

StateState StatuteSpecial Statutory ProvisionState Traditional IRA Exemption from CreditorsState Roth IRA Exemption from Creditors
AlabamaAla. Code ¤19-3B-508YesNo
AlaskaAlaska Stat. ¤09.38.017In fact, the exemption does not apply to amounts within 120 days before the debtor files for bankruptcy.YesYes
ArizonaAriz. Rev. Stat. Ann. ¤ 33-1126CIn fact, the exemption does not apply to amounts within 120 days before a debtor files for bankruptcy.YesYes
ArkansasArk. Code Ann. ¤16-66-220YesYes
CaliforniaCal. Civ. Proc. Code ¤ 704.115Yes*No
ColoradoColo. Rev. Stat. ¤13-54-102YesYes
ConnecticutConn. Gen. Stat. ¤52-321aYesYes
DelawareDel Code Ann. ¤ 10-4915YesYes
D.C.D.C. Code ¤ 15-501(a)(9) & (10)YesYes
FloridaFla. Stat. Ann. ¤222.21In this case, the debtorÕs IRAs are exempt from creditors, however one Florida court has held that inherited IRAs are not exempt from creditors (Robertson v. Deeb, 16 So. 3d 936 (Fla. 2d Aug. 14, 2009).YesYes
GeorgiaGeorgia Code Ann. ¤ 44-13-100(a)(2.1)In this case, IRAs are exempt only to the extent necessary for the support of the debtor and any dependent.YesNo
HawaiiHawaii Rev. Stat. ¤ 651-124However, this exemption does not apply to contributions toward a plan or arrangement within three years before the date a civil action begins against the debtor.YesNo
IdahoIdaho Code ¤¤ 11-604A, 55-1011YesNo
IllinoisI.L.C.S. ¤ 5/12-1006YesYes
IndianaInd. Code Ann. ¤ 55-10-2(c)(6)YesNo
IowaIowa Code Ann. ¤ 627.6(8)(e), (f)YesYes
KansasKan. Stat. Ann. ¤ 60-2308YesYes
KentuckyKy. Rev. Stat. Ann. ¤ 427.150(2)(f)However, this exemption does not apply to any amounts contributed to an individual retirement account if the contribution occurs within 120 days before the debtor files for bankruptcy. Also the exemption does not apply to the right or interest of a person in individual retirement account to the extent that right or interest is subject to a court order for payment of maintenance or child support.YesYes
LouisianaLa. Rev. Stat. Ann. ¤¤ 20:33(1), 13:3881(D)Here. itÕs important to realize no contribution to an IRA is exempt less than one calendar year from the date of filing bankruptcy. This is whether voluntary or involuntary, or the date rights of seizure are filed against the account. Also the exemption does not apply to liabilities for alimony and child support.YesYes
MaineMe. Rev. Stat. Ann. Tit. 14, ¤ 4422(13)(E)Exempt only to the extent reasonably necessary for the support of the debtor and any dependent.YesYes
MarylandMd. Code Ann. Cts. & Jud. Proc. ¤ 11-504(h)(1)YesYes
MassachusettsMass. Gen. L. Ch. 235 ¤ 34A; 236 ¤ 28The exemption does not apply to an order of court concerning divorce, separate maintenance or child support. Additionally, not to an order of court requiring an individual convicted of a crime to satisfy a monetary penalty or to make restitution. Furthermore, it doesnÕt apply to sums deposited in a plan in excess of 7% of the total income of the individual within 5 years of the individualÕs declaration of bankruptcy or entry of judgment.YesYes
MichiganMich. Comp. Laws Ann. ¤¤ 600.5451(1), 600.6023(1)(k)The exemption does not apply to amounts an individual contributes to a retirement account or individual retirement annuity. Of course, this is if the contribution occurs within 120 days before the debtor files for bankruptcy. Also the exemption does not apply to an order of the domestic relations court.YesYes
MinnesotaMinn. Rev. Stat. Ann. ¤ 550.37(24)Protection limited to $60,000 (adjusts for inflation).YesYes
MississippiMiss. Code Ann. ¤ 85-3-1(e)Applies to solo 401k plansYesYes
MissouriMo. Ann. Stat. ¤ 513.430.1(10)(e) and (f)Exemption limited to extent reasonably necessary for support.YesYes
MontanaMont. Code Ann. ¤¤ 19-2-1004, 25-13-608, 31-2-106YesYes
NebraskaNeb. Rev. Stat. ¤ 25-1563.01For IRAs Ð Bound to the extent reasonably necessary for support. Individual Retirement Accounts generally receive protection from attachment and garnishment to the extent the funds contained therein are reasonably necessary for the support of the debtor or any dependent of the debtor. Novak v. Novak, 245 Neb. 366, 513 N.W.2d 303 (1994).YesYes
NevadaNev. Rev. Stat. ¤ 21.090(1)(q)The exemption is limited to $500,000 in present value held in an IRA.YesYes
New HampshireN.H. Code Ann. ¤ 511:2, XIXYesYes
New JerseyN.J. Stat. Ann. ¤ 25:2-1(b)YesYes
New MexicoN.M. Stat. Ann. ¤¤ 42-10-1, 42-10-2YesYes
New YorkN.Y. Civ. Prac. L. and R. ¤ 5205(c)YesYes
North CarolinaN.C. Gen. Stat. ¤ 1C-1601(a)(9)YesYes
North DakotaN.D. Cent. Code ¤ 28-22-03.1(3)Retirement funds that are in effect for at least one year to the extent those funds are in an account that is exempt from taxation. This is under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. So the value of those assets that are exempt may not exceed one hundred thousand dollars for any one account or two hundred thousand dollars in aggregate for all account.YesYes
OhioOhio Rev. Code Ann. ¤ 2329.66(A)(10)(b) and (c)SEP and SIMPLE IRAs are not protected.YesYes
Oklahoma31 Okla. St. Ann. ¤ 1(A)(20)YesYes
Oregon42 Pa. C.S. ¤¤ 8124(b)(1)(vii), (viii), (ix)YesYes
Pennsylvania42 Pa. C.S. ¤¤ 8124(b)(1)(vii), (viii), (ix)100%, except for amounts that are, first, contributed within 1 year (not including rollovers). Second, contributed in excess of $15,000 in a one-year period. Or, third, deemed fraudulent conveyances.YesYes
Rhode IslandR.I. Gen. Laws ¤ 9-26-4(11), (12)YesYes
South CarolinaS.C. Code Ann. ¤ 15-41-30(12)IRA exemption limited to the extent reasonably necessary for support. For Solo 401(k) Plans, not limited to the extent reasonable necessary for support.YesYes
South DakotaS.D. Cod. Laws ¤¤ 43-45-16S.D. Cod. Laws ¤¤ 43-45- 17Exempts Òcertain retirement benefitsÓ up to $1,000,000.YesYes
TennesseeTenn. Code Ann. ¤ 26-2-105Distributions 100% exempt to the extent they are on account of age, death, or length of service and debtor has no right or option to receive other than periodic payments at or after age 58.YesYes
TexasTex. Prop. Code ¤ 42.0021YesYes
UtahUtah Code Ann. ¤ 78-23-5(1)(a)(xiv)The exemption does not apply to amounts contributed or benefits accrued by or on behalf of a debtor within one year before the debtor files for bankruptcy.YesYes
Vermont12 Vt. Stat. Ann. ¤ 2740(16)YesYes
VirginiaVa. Code Ann. ¤ 34-34Limited to interest in one or more plans sufficient to produce annual benefit of up to $25,000 (pursuant to actuarial table in statute).YesYes
WashingtonWash. Rev. Code ¤ 6.15.020YesYes
West VirginiaW. Va. Code ¤ 38-10-4(j)(5)Principal 100% protected. Exemption for distributions limited to the extent reasonably necessary for support.YesNo
WisconsinWisc. Stat. Ann. ¤ 815.18(3)YesYes
WyomingWy. Stat. Ann ¤ 1-20-110(a)(i), (ii).Statutory exemption for "retirement plans." Consensus is that an IRA would be covered by the term “retirement plan.”YesYes

*IRAs are exempt only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires.

IRA Asset Protection Planning

IRA Asset Protection Planning

Notably, the different federal and state creditor protection given to 401(k) qualified plans and IRAs, including the Self-Directed IRA, inside or outside the bankruptcy context presents a number of important asset protection planning opportunities.

For example, if you leave an employer who provides a qualified plan, rolling over assets from a qualified plan, like a 401(k) into an IRA may have asset protection implications. For example, if you live in or you are moving to a state where IRAs have no creditor protection or have an excess of $1 million dollars in plan assets and are contemplating bankruptcy, you would likely be better off leaving the assets in the company qualified plan.

That is to say, if you plan to leave at least some of your IRA funds to your family, other than your spouse, your beneficiaries’ creditors may not be able to protect your assets. Of course, this depends on where the beneficiaries live. IRA assets left to a spouse are likely to receive creditor protection if you re-title the IRA in the name of the spouse. However, you will likely be able to protect your IRA assets that you plan on leaving to your family, other than your spouse, by leaving an IRA to a trust. Consequently, you must name the trust on the IRA custodian Designation of Beneficiary Form on file.

The IRA Asset & Creditor Protection Solution

The IRA Asset & Creditor Protection Solution

In summary, by having and maintaining a Self-Directed IRA, you will have $1 million of asset protection from creditors in a bankruptcy setting. However, the determination of whether your IRA will be protected from creditors outside of bankruptcy will largely depend on state law. As illustrated above, most states will afford IRAs full protection from creditors outside of the bankruptcy context. IRA Asset Protection is a crucial part of your retirement planning.

Did You Know?

Individual 401(k) PlanWith a Self-Directed IRA LLC, investors can choose from a wide array of traditional and alternative assets to invest in. Stocks, tax liens, real estate, precious metals, and more can help diversity a portfolio to minimize risk.

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