Unprotected IRAs

SIMPLE and SEP retirement plans can represent an excellent strategy that small business owners can use in an asset exemption plan to shield assets from creditors. However, the retirement fund exemption available for ERISA-qualified (the federal Employee Retirement Income Security Act) retirement plans will not apply to IRAs established through these plans. IRAs that are established privately, or by business owners in a SIMPLE or SEP plan, are not considered ERISA-qualified.

But there is good news. Federal bankruptcy law provides that IRA contributions and earnings up to $1,000,000 are exempt from creditor attachment and rollover IRAs converted from qualified plans have no dollar limitation. It doesn't matter whether a debtor chooses state of federal exemptions or whether the state does not allow the use of federal exemptions for other, non-retirement-fund assets.

Moreover, the federal law also exempts educations savings through education IRAs and 529 savings plans. If the savings were established more than two years prior to filing, the entire amount is exempt; if established between 365 and 730 days before filing, the exemption is limited to $5,000.