IRA bankruptcy protection is a provision made by Congress that allows individual retirement account owners to protect their accounts from creditors in a bankruptcy proceeding.
IRA that are recognized by the federal tax code benefit from substantial protection from creditors during bankruptcy. Protection under this law varies, depending on the type of IRA.
Roth and traditional IRAs are protected up to a certain dollar limit, which changes every three years. SEP IRAs, SIMPLE IRAs, and rollover IRAs are fully protected from creditors in a bankruptcy, regardless of the dollar value.
Effective April 1, 2022, the maximum aggregate bankruptcy exemption amount for IRAs is $1,512,350. The next increase will go into effect on April 1, 2025.
Each state is different with regard to the extent by which IRAs are protected. The federal laws in the Bankruptcy Code are confusing, and the rules also change state-by-state.