Retirement accounts are among the most strongly protected assets in bankruptcy. ERISA-qualified plans (401(k), 403(b), 457(b), most pension plans, profit-sharing plans) are fully exempt without dollar limits in every state. Traditional and Roth IRAs are protected up to $1,512,350 per person (combined, 2025-2028 figure, indexed every 3 years) under federal law. Almost no consumer bankruptcy results in a retirement account being touched.
ERISA-qualified plans are protected by federal law. The U.S. Supreme Court held in Patterson v. Shumate, 504 U.S. 753 (1992) that ERISA-qualified retirement plans are excluded from the bankruptcy estate under 11 U.S.C. § 541(c)(2). This protection is automatic in every state and does not depend on state exemption law. 401(k) balances of $50,000 or $5 million are equally protected.
IRA protection under federal bankruptcy law. The Bankruptcy Code at 11 U.S.C. § 522(n) caps IRA protection at $1,512,350 per person across all traditional and Roth IRAs combined. The cap is reviewed and adjusted every three years for inflation. Above the cap, the excess balance is potentially reachable by a trustee, though substantial-balance IRAs are rare in consumer bankruptcy.
Inherited IRAs are not protected. The Supreme Court ruled in Clark v. Rameker, 573 U.S. 122 (2014) that inherited IRAs are not 'retirement funds' for bankruptcy exemption purposes and are not protected under federal law. State exemption law varies. About half of states have enacted statutes specifically protecting inherited IRAs (Texas, Florida, North Carolina, Arizona, and others). The other half do not, leaving inherited IRA balances exposed in those states.
Pension plans. Defined benefit pension plans (where you receive a monthly amount in retirement based on years of service) are ERISA-qualified and protected in full. Government and church plans receive equivalent protection through separate statutes. Pension benefits already in pay status are usually exempt as 'income' under state exemption law as well.
Social Security. Social Security retirement and disability benefits are fully protected under 42 U.S.C. § 407, which the Supreme Court has held overrides state exemption limits. Benefits in your bank account remain protected as long as they can be traced to the federal direct deposit (most banks will identify these by the deposit code 'SSA' or 'XX SOC SEC').
The cardinal mistake: cashing out retirement to pay creditors. The most common (and most expensive) mistake consumer debtors make is cashing out a 401(k) or IRA to pay credit card debt before filing bankruptcy. The retirement account was fully protected. The cash, once withdrawn, is not protected. The withdrawal also triggers a 10 percent early withdrawal penalty if you are under 59 1/2, plus federal and state income tax on the full distribution. A $50,000 401(k) withdrawal to pay credit cards often nets only $32,000 after tax and penalty, and that $50,000 of debt is fully dischargeable in Chapter 7 anyway.
401(k) loans. Loans against your own retirement account are not creditors. The loan balance is treated as a reduction of your retirement balance, not a debt to a third party. The loan continues after bankruptcy and is repaid through payroll deduction. Some Chapter 13 districts allow you to suspend 401(k) loan payments during the plan to free up funds for unsecured creditors; others require continued repayment.
Recent contributions. Contributions to a retirement account in the months before filing are not typically clawed back. The exclusion under § 541(c)(2) applies regardless of when the contributions were made, though a contribution that was clearly made to shield assets from creditors (a large lump-sum contribution shortly before filing that exceeded usual amounts) could be challenged.
The honest summary. Retirement accounts are nearly always safe in bankruptcy. The protection is one of the strongest in consumer bankruptcy law. The expensive mistake to avoid is liquidating retirement to pay debt that bankruptcy would have erased anyway.