401(k) vs IRA Creditor Protection: What a Rollover Changes

Updated August 2, 2026. Quick answer: a 401(k) and an IRA are not equally protected, and the difference flips depending on who is coming after the money. Against an ordinary judgment creditor, the 401(k) is stronger, because a federal statute protects it directly and an IRA falls back on whatever your state happens to provide. Inside a bankruptcy, the picture reverses in an odd way: a rolled-over IRA is fully exempt regardless of size, while contributory IRA money sits under a cap. Rolling a 401(k) into an IRA therefore changes what you are protected against — in both directions at once.

Regime one: an ordinary creditor with a judgment

This is the common case, and it has nothing to do with bankruptcy. Someone sues you, wins, and looks for assets.

A 401(k) and most employer plans are covered by ERISA, whose anti-alienation rule is one sentence long and unusually blunt:

“Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.”

29 U.S.C. 1056(d)(1), ERISA 206(d)(1)

That protection is federal, it is the same in every state, and it travels with the plan. It is not absolute — the statute carries exceptions, the best known being domestic relations orders, and federal tax claims reach places private creditors cannot. We did not read the full text of those exceptions this session, so treat them as real but do not take a list from us.

An IRA has no ERISA protection. What it has is state law, and state law varies from complete to conditional — what your state actually provides, including California, where an IRA is protected only to the extent a court thinks you need it.

Regime two: inside a bankruptcy case

Different rulebook entirely. The Bankruptcy Code exempts “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a)” — which covers 401(k)s and IRAs alike, and then does something unexpected to IRAs specifically.

Contributory traditional and Roth IRAs are capped. The figure written into the statute is $1,000,000, adjusted for inflation every three years, so the operative number today is meaningfully higher than the printed one. We are not publishing the current adjusted figure, because we could not confirm it against the official notice this session and this is not a number worth being approximately right about. If you are near it, it comes from the current Administrative Office notice for your filing date.

The clause that reframes the rollover decision

Here is the part almost nobody states. That cap applies

“without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon”

11 U.S.C. 522(n)

Read that again with the cap in mind. Money that arrived in your IRA as a rollover from an employer plan does not count toward the cap at all, and neither do its earnings. A $3,000,000 IRA that came entirely from a 401(k) rollover is fully exempt in bankruptcy. A $1,200,000 IRA built from twenty-five years of ordinary contributions is not.

So the two regimes give opposite advice about the same rollover:

The practical reading: the rollover costs you protection in the regime you are far more likely to encounter — being sued — and costs you nothing in the regime you are less likely to encounter. If you live in a state with full IRA protection, the gap is small. If you live in California, it is not small at all.

This is one input among several, and it points against a rollover where the fee argument often points toward one. Both deserve weighing: what the fee difference actually costs sets out the other side with real numbers, and for federal employees the TSP adds a penalty-access rule that a rollover also gives away. Three separate reasons to think before consolidating, none of which is about investments.

One more asymmetry: your own IRA versus one you inherited

Everything above concerns your own account. An account you inherited is not treated as retirement money at all in bankruptcy — the Supreme Court settled that in 2014, and the reasoning is worth understanding before you plan around it.

The line this page does not help you cross

Everything here describes protection that exists because you arranged your affairs before anyone had a claim against you. That is ordinary, lawful planning, and it is what exemption statutes are for.

Moving assets to defeat a creditor who already exists, or one you can reasonably foresee, is a different act with a different name. Courts call it a fraudulent transfer, or in the more modern phrasing a voidable transaction, and the remedy is that the transfer is undone — often alongside consequences considerably worse than the original debt. The two things courts look at are timing and intent, and a transfer made after the car accident, after the demand letter, or after the audit notice tends to answer both questions by itself.

We have not verified each state’s version of that doctrine for this page, and we are not going to summarise fifty of them from memory. The principle is what matters, and it does not vary much: protection is something you build in advance, not something you reach for once a claim has arrived. If a claim has already arrived, the person you need is a lawyer in your state, today — not a website.

ERISA anti-alienation from 29 U.S.C. § 1056(d)(1); the bankruptcy exemption and the IRA cap with its rollover carve-out from 11 U.S.C. §§ 522(b)(3)(C) and 522(n); the state opt-out from § 522(b)(2). Statutory text read on uscode.house.gov and law.cornell.edu. Read August 2026. This is a factual compilation of published statutes and constitutional provisions for planning purposes. It is not legal advice, exemption law is intensely fact-specific, and the difference between winning and losing an exemption fight is usually a detail no article can see. Confirm your own position with a lawyer licensed in your state.