Asset Protection & Qualified Plan Rollovers

Qualified plan rollovers offer asset protection, as ERISA-governed plans and their assets are generally protected from creditors, and these protections often extend to a subsequent IRA rollover if the funds are transferred within 60 days to an eligible plan. However, IRA asset protection is more limited, as it depends on state law and may not fully protect assets from creditors or beneficiaries other than a spouse. To maximize protection, leaving assets in an employer-sponsored plan or using a trust for non-spouse beneficiaries can be beneficial.

Asset Protection and Rollovers

• Employer-Sponsored Plans:Assets held in qualified retirement plans, such as 401(k)s, are protected from creditors under ERISA.

• Rollover to an IRA:When you roll over a distribution from a qualified plan into an IRA, the protection can be maintained if the rollover is completed within 60 days.

• IRA Creditor Protection:Unlike employer plans, IRA asset protection is governed by state law and is not as robust. Some states offer significant protections, while others offer very little.

When to Leave Assets in an Employer Plan

• Weak State Creditor Protection:If you reside in a state with limited IRA creditor protection, it may be better to leave your retirement funds in your former employer's qualified plan to maintain strong asset protection.

• Large IRA Assets:If your IRA exceeds a certain asset threshold (often around $1.2 million), it might be vulnerable to creditors, even in states with strong protection, according to some sources.

• Non-Spouse Beneficiaries:To ensure asset protection for beneficiaries other than your spouse, it is advisable to leave the IRA assets in the employer plan or place them in a trust.

For Beneficiaries Other Than Your Spouse

• Spousal Protection:If you leave IRA assets to your spouse, the protection may be maintained if they re-title the IRA in their name.

• Trusts for Other Beneficiaries:To provide asset protection for non-spouse beneficiaries, you should name a trust as the beneficiary on the IRA custodian's designation of beneficiary form.