Facebook Rss Twitter Youtube MSN

Are Roths safer than other IRAs?

Jul 29, 2013 | | Comments Comments Off

Dear Liz: I found your recent discussion of Roth IRAs informative. But I’ve been told that one of the main advantages of a Roth vs. a traditional IRA is that a Roth is a safer investment when it comes to creditors trying to attack it. How can that be? Is one type of IRA safer than another?

Answer: The short answer is no.

Employer-sponsored retirement plans, including 401(k)s and 403(b)s, typically have unlimited protection from creditors in Bankruptcy Court. The exceptions: The IRS and former spouses can make claims on such plans.

Individual retirement accounts, including IRAs and Roth IRAs, lack the protection afforded by the Employee Retirement Income Security Act, or ERISA. But the bankruptcy reform law that went into effect in 2005 protects IRAs of all kinds up to a certain limit (which in April rose to $1,245,475).

Short of bankruptcy, the amount of your IRAs or Roth IRAs that creditors can access depends on state law.

If there’s any chance you’ll be filing for bankruptcy or the target of a creditor lawsuit, you should talk to an experienced bankruptcy attorney about your options.

Related Posts

  • Missed deadline could limit inherited Roth IRA’s benefits
    Dear Liz: I inherited my brother's Roth IRA about three years ago. I find it hard to get any information about non-spousal inherited Roths. Can you t...
  • Save for retirement before you pay down a mortgage
    Dear Liz: My husband and I are fortunate to be in relatively good financial shape. We both plan to retire in 10 years when we turn 60. We have zero...
  • No 401(k)? What to do
    Dear Liz: I work for a small company that doesn't offer the benefits large companies do, such as a 401(k) retirement account. My husband is a feder...
  • No match? Save anyway
    Dear Liz: Lately I have been reading a lot about how people aren't saving enough for retirement. Every article I read talks about the need to put eno...

Categories : Q&A, Retirement