Is my money less protected from creditors after I roll a 401(k) into an IRA?

By Kaz · Published 28 September 2026 · How this site checks figures

Summary

In some situations, yes. FINRA's summary is that plan assets generally have unlimited protection from creditors under federal law, while IRA assets are protected in bankruptcy only, and how far an IRA is shielded in a lawsuit depends on state law. Inside bankruptcy, money that came into the IRA from a 401(k) rollover keeps its full protection; the dollar cap, $1,711,975 for bankruptcy cases filed on or after April 1, 2025, applies to what you contributed to the IRA yourself and its earnings.

Why a 401(k) is hard to reach

Every qualified plan has to say that its benefits cannot be assigned or alienated. The IRS lists this among the basic plan requirements under Code section 401(a)(13), with two carve-outs: participant loans the plan allows, and qualified domestic relations orders. The DOL puts it plainly: "In general, ERISA and the Code do not permit a participant to assign or alienate the participant's interest in a retirement plan to another person." A QDRO, the court order that divides benefits in a divorce or for child support, is the limited exception.

In bankruptcy

The Bankruptcy Code exempts retirement funds held in tax-exempt accounts, which covers both 401(k)s and IRAs. It also says a direct transfer between such accounts, or an eligible rollover distribution, does not cause the money to lose that status. A distribution you receive yourself and deposit in another qualifying account within 60 days is treated the same way.

The difference is subsection (n). For traditional and Roth IRAs, the exempt amount is capped, but the cap is calculated without amounts attributable to rollovers from employer plans and the earnings on them. SEP and SIMPLE IRAs are left out of the cap entirely. The statute says $1,000,000; after the adjustment that took effect April 1, 2025, the figure for individual cases filed on or after that date is $1,711,975. A court can raise it "if the interests of justice so require."

Say an IRA holds $2.4 million, of which $1.9 million traces back to 401(k) rollovers and their growth and $500,000 to your own yearly contributions and their growth. Only the $500,000 counts toward the cap, and it's well under $1,711,975. That tracing is why the rollover paperwork matters long after the move.

Outside bankruptcy

Here the two accounts part ways. The anti-alienation rule described above does not depend on a bankruptcy filing, so a creditor holding a court judgment generally cannot reach a 401(k) balance, subject to the loan and QDRO carve-outs. FINRA describes IRA assets as protected in bankruptcy proceedings only and adds that "State laws vary in the protection of IRA assets in lawsuits." Before a rollover, the point to settle is which state's exemption law would apply to you and what it says about IRAs.

Sources

Written by Kaz, an independent publisher.
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