Employer-sponsored retirement plans offer many tax-based benefits and simplicity, enabling Americans to reach their retirement goals.  One benefit often overlooked is the broad protection from creditors under federal law (ERISA). 

ERISA‑qualified plans (e.g. 401(k), profit‑sharing, defined benefit pensions, many 403(b) plans)

• In bankruptcy: Assets held in ERISA qualified plans are generally excluded from the bankruptcy estate. This means the bankruptcy court should not use them to pay off ordinary creditors.
• Outside bankruptcy: The anti‐alienation clause typically prevents regular creditors (e.g. someone with a judgment) from seizing those plan assets. That said, there are exceptions (see below).
• Exceptions / limits:
  • Qualified Domestic Relations Orders (QDROs) — For divorce, child support or alimony: A court may order a portion of benefits to be paid out. That is allowed under ERISA.
  • Federal tax liens / IRS obligations — The IRS may be able to reach retirement funds in certain circumstances, especially after distribution or under specific rules.
  • Fraudulent transfers — If contributions to a plan or transfers are undertaken to defeat creditors, some courts allow those to be undone.
  • Owner only plans — A plan that covers only the business owner (and possibly their spouse), with no common law employees, is not covered by ERISA’s anti‐alienation protection. Outside of bankruptcy, creditors may have more access. In bankruptcy, some protections may still apply under the Bankruptcy Code, but the absence of ERISA status weakens non‑bankruptcy protections.

IRAs (Traditional, Roth, SEP, SIMPLE)

• IRAs are not under ERISA’s anti-alienation rules. That’s a key difference: state law governs much of their protection outside bankruptcy. ERISA does not cover “individual retirement arrangements” except in limited ways.
• In bankruptcy: Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, IRAs receive certain protections. Some are limited, while others are unlimited, depending on the type of IRA and whether it was funded or rolled over.
  • There is a cap for traditional and Roth IRAs in bankruptcy: as of the latest adjustment (2025–2028), that cap is $1,711,975.
  • SEP IRAs, SIMPLE IRAs, and IRAs that consist solely of rollovers from ERISA plans tend to have unlimited protection (i.e. no dollar cap) under bankruptcy law when done properly.
• Outside bankruptcy: Protections vary widely. State laws decide whether IRAs are protected from garnishment, judgments and other claims. Some states provide strong safeguards, while others provide little.
• Inherited IRAs offer especially weak creditor protection. The Supreme Court has ruled that inherited IRAs generally do not receive the same bankruptcy protection as IRAs owned directly, except in limited cases such as a surviving spouse.

Something to keep in mind for entrepreneurs as their business grows and matures is to protect personal liability.