Find out if judgment creditors can go after your IRAs, 401ks, pensions, and other retirement accounts in California.
If you live in California and a creditor gets a judgment against you, that judgment creditor may be able to collect from your retirement account. In California, some retirement accounts are protected (such as 401ks and profit-sharing plans). Others are more vulnerable to judgment creditors (such as IRAs). A judgment creditor's ability to get your retirement account in California will depend on what type of retirement account you have and how much you have in it.
(Learn about other ways that judgment creditors can collect from your income and assets.)
Federal Protection for ERISA-Qualified Retirement Accounts
Federal law prohibits judgment creditors from going after money in a pension plan that was set up under the Employee Retirement Income Security Act (ERISA). To be protected against creditors, your ERISA account must be either a qualified retirement plan or an employee welfare benefit plan covered by ERISA.
Examples of ERISA-qualified pension plans and benefit plans covered by ERISA include:
- 401(K) accounts
- pension and profit-sharing plans
- group health and life insurance plans
- dental and vision plans, and
- HRAs, HSAs, and accidental death or disability benefits.
There are circ*mstances when a judgment creditor may be able to get to your ERISA account, such as for a domestic relation order for spousal support or child support (called a "QDRO"), or an IRS tax garnishment.
To learn more about ERISA-qualified retirement accounts, their protection from judgment creditors, and the exceptions to that protection, see Can Judgment Creditors Go After My Retirement Accounts?
Less Protection for Non-ERISA Accounts in California
If your retirement account is not qualified or covered by ERISA, then a judgment creditor could potentially seize it. That is because some non-ERISA accounts in California do not have the same protections as ERISA accounts.
Types of non-ERISA accounts that may be vulnerable include:
- IRAs, Roth IRAs and SIMPLE IRAs
- SEP and Keogh Plans
- 403(b) plans for employees of a public school or university
- plans that do not benefit employees, or "employer-only" plans, and
- government or church plans
"Amount Necessary For Support" Is Protected
California law allows you to exempt the amounts of your IRA and other non-ERISA accounts that are necessary for the support of you and your dependents at the time you retire. There is no single rule that applies to everybody's retirement accounts. Rather, courts decide how to divide your retirement account between you and a judgment creditor based on your particular circ*mstances.
Typically, a California court will ask these two questions:
- Do you need the retirement funds now, and if so, how much?
- Will you be able to replenish those retirement funds if they are awarded to the judgment creditor?
In reaching an answer to each of those questions, the court will likely consider the following factors:
- your present and future income
- your present and future living expenses
- your age and health
- your ability to continue working and make a living (including trade skills and education level)
- your ability to save more money for retirement, and
- any special needs of you or your dependents.
Example. If you have a $150,000 IRA, you may not be able to keep it if you are 40 years old, healthy and employed, have no dependents, and earn $60,000 a year. However, you may be able to keep that same account if you are 65 years old, suffering from a heart condition, and unemployed.
Additional Roll Over Protection
If you roll over funds from an ERISA account or PRP into an IRA, those funds remain 100% exempt. This is the case even though the IRA is not fully exempt in California. As long as you are able to prove that the funds in your IRA originally came from an ERISA account or PRP, then you do not have to go through the "necessary for support" test.
California Protection for Private Retirement Plans
If your pension plan does not fall under ERISA, but qualifies as a "private retirement plan" (PRP) under California law, then it may be fully protected. Unlike with an IRA, you do not have to prove that the funds are necessary for your support.
To qualify, the PRP must be set up as an employment pension plan, with written rules restricting access to the funds, much like an ERISA account. You cannot just deposit a single large lump sum of your own money or roll over your IRA funds into a PRP. Instead, a PRP is a retirement savings plan available for individual employees whose employers do not offer pension plans or other ERISA accounts. The PRP must be used for retirement purposes and you cannot casually transfer funds in and out of the PRP. If you use PRP funds prematurely and for non-retirement purposes (such as paying personal debts and expenses) then it may lose its exempt status.
Other Ways to Protect Your Retirement Accounts in California
If you live in California and have a non-exempt, non-ERISA retirement account that a judgment creditor is trying to attach, you might consider filing bankruptcy. Bankruptcy laws may allow you to protect up to $1 million in your IRA, while still affording you relief from your creditors. To learn more, including whether you qualify for bankruptcy protection, visit Nolo's Bankruptcy topic area.
FAQs
In California, IRAs are not as well protected as 401(k)s. What this means in practice is that if you are being sued for personal injury in California, your 401(k) will be protected from the prosecutor; however, your IRA will only be protected up to the point that the court deems necessary.
Are retirement accounts protected from creditors in California? ›
California Protection for Private Retirement Plans
If your pension plan does not fall under ERISA, but qualifies as a "private retirement plan" (PRP) under California law, then it may be fully protected. Unlike with an IRA, you do not have to prove that the funds are necessary for your support.
Can creditors go after retirement accounts? ›
In general, retirement plans that are covered by ERISA are protected from creditors—and their lawsuits. A 401(k) is an ERISA-qualified plan, so it is likely protected if you get sued. There may be a few exceptions, such as charges brought by the federal government or if you allegedly wronged the plan.
Are retirement accounts protected from garnishment? ›
The general answer is no, a creditor cannot seize or garnish your 401(k) assets. 401(k) plans are governed by a federal law known as ERISA (Employee Retirement Income Security Act of 1974). Assets in plans that fall under ERISA are protected from creditors.
How to protect your IRA from creditors? ›
To make sure that a rollover IRA from a qualified retirement plan is protected in a bankruptcy, it helps to create a separate account just for those assets.
How do I protect my assets from judgements in California? ›
The goal of asset protection is to guard against unanticipated future claims, not previously filed claims or ones that are reasonably predictable.
- Purchase Insurance. ...
- Transfer Assets. ...
- Re-Title Assets. ...
- Make Retirement Plan Contributions. ...
- Create an LLC or FLP. ...
- Set Up a DAPT. ...
- Create an Offshore Trust.
IRA's are fully protected in Florida. However, California only provides limited or partial protection. California provides that IRA's are protected only to the extent that the funds within the IRA are “reasonably necessary” to provide for the plan participants retirement needs.
Are retirement accounts protected from judgements? ›
Under the Employee Retirement Income Security Act (ERISA), creditors are generally not able to seize funds from pensions and employer-sponsored retirement accounts. Creditors may target funds in traditional and Roth IRAs and certain 403(b) plans, which are typically not protected under ERISA.
Are IRA and 401k protected from lawsuits? ›
Your 401(k) or other employer-based retirement plan may be federally protected in a lawsuit. But IRA protections are handled by the states, which means your retirement funds could be used to pay damages.
What assets are protected in a lawsuit in California? ›
Navigating California's Asset Protection Legal Landscape
Key components include: Homestead Exemption: Protects a portion of home equity from creditors. Retirement Accounts: Laws safeguarding retirement funds from claims. Insurance Policies: Certain types of insurance offer asset protection benefits.
Retirement accounts like 401ks and IRAs have special protection from creditors and debt collectors. Under federal law, 401ks and other ERISA-qualified plans cannot be garnished by creditors. IRAs also receive protection up to $1 million (adjusted for inflation) under federal bankruptcy law.
Can creditors garnish pension payments? ›
Federal law protects some pensions, like Social Security, from being garnished for most debts, but private pensions and certain federal retirement benefits might be susceptible to garnishment.
Can my Social Security be garnished for a judgement? ›
407, 652(b), 659 and 662(f)) LEVY AND GARNISHMENT OF BENEFITS. Generally, Social Security benefits are exempt from execution, levy, attachment, garnishment, or other legal process, or from the operation of any bankruptcy or insolvency law.
Which states protect IRA from creditors? ›
The safest states to live in for protecting IRA funds include Arizona, Texas, and Washington. Arizona state laws only allow the judgment creditor to seek retirement funds during bankruptcy from the last 120 days of contributions, meaning everything prior has 100% legal protection.
Can my 401k be garnished? ›
The federal government, through the IRS, can seize your 401(k) money to collect on a court judgment resulting from defaulted taxes or a federal tax levy. The IRS can also garnish your 401(k) if the court finds you guilty of a federal crime.
Can an IRA be garnished for credit card debt? ›
Assets are fully protected from creditors in both types of retirement account. Further, in such states the distributions from such accounts are also protected. But in California, creditors may come after any IRA assets not deemed necessary for living expenses.
Is a 401k protected from creditors in California? ›
In California, IRAs are not as well protected as 401(k)s. What this means in practice is that if you are being sued for personal injury in California, your 401(k) will be protected from the prosecutor; however, your IRA will only be protected up to the point that the court deems necessary.
What property is exempt from creditors in California? ›
California 704 Homestead Exemption
In System 1 (also known as § 704 exemptions), you can exempt real or personal property you reside in at the time of filing for bankruptcy, including a mobile home, boat, stock cooperative, community apartment, planned development, or condominium, up to $600,000 - 704.730.
What is the law regarding retirement account in California? ›
Is CalSavers mandatory for employers to register? After June 2022, all employers in the state with at least five W-2 employees must provide a qualified retirement savings plan—such as a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b), to their employees—or offer the state-run option.
Are retirement accounts community property in California? ›
In California, all types of retirement benefits are considered community property, which allows CalPERS benefits to be divided upon a dissolution of marriage or registered domestic partnership or legal separation.
