IRAs Being Garnished By Creditors

Author: Focus on the User | 3 min read
Retirement account or IRA garnishement rules
Your IRA could be garnished depending on the state you reside in.

In some U.S. states, creditors may be able to take money from your Individual Retirement Account (IRA). The Employee Retirement Income Security Act does not cover traditional, Roth, SEP, and SIMPLE IRAs. Unlike 401(k) plans or other qualified retirement savings vehicles, which are. Individual IRA accounts do not have the same level of protection from creditors as employer-sponsored retirement plans.

Is There Protection For IRAs From Being Garnished?

There is no federal protection for IRAs, unlike 401(k)s and other savings plans covered by the Employee Retirement Income Security Act of 1974.

Only in the event of bankruptcy does the federal government guarantee that your IRA will receive federal protection.

There are no federally mandated exceptions to garnishing an individual retirement account (IRA).

Any federal debts can be taken from your retirement savings. Back taxes owed to the IRS are the most common type of federal debt paid back with an IRA.

Retirement Account Garnishment to Pay Debts Owed

Domestic relations debts can lead to IRA garnishment in some states. One of the most common reasons for a legal IRA takeover is child support payment. There is no protection for IRA funds from court judgments related to unpaid child support in many states, including Kentucky, Colorado, and Louisiana.

Garnishment of your IRA may also be possible in other states for reasons unrelated to a divorce or separation. Kentucky, Louisiana, and Rhode Island allow garnishment to satisfy alimony obligations in addition to child support arrears. Wisconsin allows the seizure of IRA funds to fulfill court orders related to annulment, divorce, or legal separation.

Exemption From the Early Withdrawal Penalty

If you withdraw money from your IRA before 59 1/2, you'll face a 10% early withdrawal penalty. In the unfortunate event that you must take money out of your retirement fund to pay off debts, this also applies. The penalty is waived if your IRA is seized to pay back an IRS debt.

Can I Lose Access to My IRA If I Get Sued?

Your state of residence determines whether or not your IRA can be seized in a lawsuit. In the event of a lawsuit, there are no federal safeguards in place to protect your IRA.

Are You at Risk with Your IRA?

Your IRA retirement savings may be in jeopardy if you are served with a lawsuit. A court order may be issued against you if someone is hurt on your property or if you are involved in a car accident. Legally, you may be forced to dip into your retirement savings to pay off a debt if you cannot do so with other assets.

Divorce and parental rights disputes can also lead to lawsuits that threaten your IRA.

IRA Resources

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