Is My Retirement Account Exempt In Bankruptcy?

The short answer is typically “Yes.” However, there are some unique rules. If you contributed to the IRA or 401K, and the amount is reasonable to support you and your dependents and you have not made any “unusual” contribution of sums prior to bankruptcy, then you are probably fine. Consult with a bankruptcy attorney prior to making any decisions.

But, there are some unique things as well. Such as an inherited Retirement Account. For a spouse who inherits a retirement account, once again you are probably fine. However, if someone other than your spouse “gifted” the retirement account to you, the you may not. There are recent changes in the bankruptcy case law that address this issue.

IRA exemptions were disputed before 2005. In Rousey v. Jacoway (2005), the Supreme Court held that qualifying IRAs could be exempt under 11 U.S.C. § 522(d)(10)(E), subject to that provision’s requirements. Current bankruptcy law also provides exemptions for qualifying retirement funds under §§ 522(b)(3)(C) and 522(d)(12). Sources: Rousey v. Jacoway, 544 U.S. 320 (2005); 11 U.S.C. § 522.

To fit the definition of a tax favored IRA, the owner of the account cannot take loans from the account. However, this becomes a more tricky definition when you examine the agreements that many large brokerage firms impose on their clients, including that if the IRA owner borrows money from another account at the same brokerage to buy stock on margin, the brokerage has a lien against the IRA to ensure repayment. Some Chapter 7 trustees have suggested this clause means that these IRAs are not tax-favored.

As of October 25, 2026, the federal bankruptcy exemption cap under 11 U.S.C. § 522(n) for covered traditional and Roth IRA assets is $1,711,975 per debtor for cases filed on or after April 1, 2025. This cap does not apply to SEP or SIMPLE IRAs, and specified eligible rollover contributions and their earnings are excluded from the amount counted toward the cap. The court may increase the cap if the interests of justice require it. These cap rules do not make an account automatically immune from every bankruptcy issue; the funds must still qualify for protection, and rollover records matter. Sources: 11 U.S.C. § 522; 11 U.S.C. § 104.

A civil judgment does not automatically make an IRA available to creditors in Washington. State law protects specified retirement plans and accounts from execution, attachment and garnishment, subject to exceptions. Bankruptcy protection and nonbankruptcy creditor protection are separate questions, so review the type of account, the debt and the applicable exemptions before deciding whether a bankruptcy filing is needed. Sources: RCW 6.15.020; 11 U.S.C. § 522.

Over the past 34 years, the Law Offices of Christopher A. Benson has helped over 3,000 of Washington clients take control of their financial situation. We can review whether bankruptcy may help stop your garnishment and address your debts through a repayment plan. Sources: 11 U.S.C. § 362(a)–(d); U.S. Courts: Chapter 13 bankruptcy. If money has already been garnished, recovery may be possible in some cases, depending on the timing of the transfers, applicable exemptions and other legal requirements. A refund is not automatic or guaranteed. Sources: 11 U.S.C. § 547(b)–(c), (e)–(g); 11 U.S.C. § 522(g)–(i); 11 U.S.C. § 550(a). But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.