Exemption for Retirement Accounts
As part of the reforms of the Bankruptcy Abuse and Prevention Consumer Protection Act of 2005 (BAPCPA), Congress included an exemption for virtually all types of pension and retirement accounts recognized by the IRS. Prior to the change, debtors had to rely on state exemptions to the extent they existed. Section 11 USC 522(d)(12) exempts “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code.” More important, the exemption applies whether the debtor relies on federal bankruptcy exemptions or state law exemptions. 11 USC 522(b)(3)(C).
Although unlimited for most retirement accounts, the exemptions for Roth and traditional IRAs are capped. Section 11 USC 522(n), caps the value of the exemption for Roth and traditional IRAs at one million dollars per individual, which is adjusted every three years for inflation. If the account does not qualify as completely exempt, the bankruptcy code may provide other options to protect at least a portion of the funds. A bankruptcy attorney should be consulted to determine what, if any, exemptions may apply.
