This is the time of year when we are all focused on taxes.  This includes our tax returns for 2011 and tax planning for 2012.  So it is an appropriate time of year for a reminder about retirement plans and IRAs.  We all seem to be aware of their tax advantages; but I constantly remind clients that they are also highly advantageous from an asset protection standpoint.

  • An ERISA qualified retirement plan is protected from the plan participant’s creditors pursuant to the 1992 decision of the U.S. Supreme Court in Patterson v. Shumate.
  • IRAs received specific protection under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.
  • Some IRA protections (for example, those relating to inherited IRAs) depend on state law.  For example, Texas and Florida have enacted specific legislation to provide that inherited IRAs are protected from creditors.  Ohio and some other states have passed legislation exempting inherited IRAs in bankruptcy.

The legal details of retirement plans and IRAs can be very complicated.  But a simple point to keep in mind is this: maximizing contributions to retirement accounts is a very basic (and very effective) tax and asset protection strategy.