Federal Shields

The federal floor is narrow but absolute. Two statutes do almost all the work.

ERISA-qualified plans. 401(k), 403(b), pension, profit-sharing, and most other employer-sponsored qualified plans receive unlimited federal protection. The anti-alienation provision in 29 U.S.C. § 1056(d) prevents any creditor — bankruptcy or otherwise — from reaching the plan assets while they sit inside the plan, with narrow exceptions: a Qualified Domestic Relations Order in divorce (section “Splitting Retirement Accounts”), a federal tax lien, and certain criminal forfeitures. The protection is uncapped in dollars and survives outside bankruptcy. The Supreme Court held in Patterson v. Shumate (1992) that ERISA’s anti-alienation provision excludes plan assets from the bankruptcy estate entirely.

In practice this means: every dollar that can plausibly live inside a 401(k) or pension should live there, both for the tax shelter and for the litigation shelter. The mega backdoor Roth (section “After-tax 401(k) Plan”) is asset-protection-equivalent to the pre-tax 401(k); a backdoor Roth IRA loses the ERISA shield the moment the money moves out of the qualified plan. Roll IRAs back into a current 401(k) (a “reverse rollover”) if you want the ERISA shield on the consolidated balance.

The solo 401(k) exception — and it is a large one. The paragraph above is true of ERISA plans, and a one-participant plan is not one. Under 29 C.F.R. §2510.3-3(b) a plan covering only the business owner (or the owner and spouse), with no common-law employees, is not an employee benefit plan for Title I purposes at all — because ERISA exists to protect employees from the owner, and there are none. No Title I coverage means no anti-alienation provision, which means no protection from ordinary judgment creditors outside bankruptcy. What survives is:

• In bankruptcy: full protection. 11 U.S.C. §522(b)(3)(C) and §522(d)(12) exempt funds in any plan qualified under IRC §401, regardless of ERISA status, without the dollar cap that applies to IRAs. A solo 401(k) is safe in an actual bankruptcy filing.
• Outside bankruptcy: whatever your state grants, and nothing more. Texas, Florida, and several others protect qualified-plan assets fully by statute. California protects only what a court deems “reasonably necessary for the support” of the debtor and dependents — the same standard it applies to IRAs — which on a $2M solo 401(k) is a judicially determined haircut, not a shield.

This lands squarely on this book’s reader: the consultant, physician, attorney, or founder operating through their own entity in California, holding seven figures in a solo 401(k) they believe is bulletproof because every article says 401(k)s are ERISA-protected. It is not, and the gap only appears when a judgment creditor arrives without a bankruptcy filing to force protection. Two fixes, neither exotic: hire one non-owner common-law employee into the plan and it becomes a Title I ERISA plan with full anti-alienation protection; or accept the exposure and address it at the umbrella and entity layers (section “Umbrella and Excess Liability as the First Line”, section “Entity Structures”) instead of assuming a shield that is not there. Check your state’s statute before deciding which.

IRAs in bankruptcy: the BAPCPA cap. The BAPCPA federalized IRA bankruptcy protection in 2005 at 11 U.S.C. §522(n). Traditional and Roth IRA contributions, plus their growth, are protected up to an inflation-indexed cap that resets every three years. The April 1, 2025 adjustment raised the cap from $1,512,350 to $1,711,975 per debtor, where it sits through the next reset in April 2028. Critically, the cap does not apply to:

• Amounts rolled into the IRA from an ERISA-qualified plan. The 401(k) rollover dollars keep their unlimited ERISA-derived bankruptcy protection so long as the rollover is traceable. Keep documentation. Some practitioners maintain a separate “rollover-only” IRA to make the trace clean.
• SEP-IRAs and SIMPLE IRAs, which are treated for bankruptcy purposes like qualified plans — unlimited protection.

Outside bankruptcy the IRA protection collapses to state law. About half of states protect IRAs fully against non-bankruptcy creditors; the other half do not, or apply their own dollar caps, or limit protection to amounts reasonably necessary for support. If you live in California, Maine, or one of the other limited-protection states, the BAPCPA shield only matters in actual bankruptcy — and a judgment creditor who garnishes outside bankruptcy can reach the IRA balance the state does not protect.

The inherited IRA trap. The Supreme Court ruled unanimously in Clark v. Rameker (2014) that inherited IRAs are not “retirement funds” under the Bankruptcy Code and receive no federal shield. A surviving spouse who inherits and treats the IRA as their own retains protection; a non-spouse beneficiary — adult child, sibling, trust — holds a fully exposed asset. A handful of states (Florida, Texas, Arizona, North Carolina, Ohio, Idaho, Missouri, Alaska) have enacted explicit state-law protection for inherited IRAs. In every other state, an inherited IRA is creditor candy. This is the case for naming a properly drafted “conduit” or “accumulation” trust as the IRA beneficiary instead of a human heir directly. The 10-year SECURE Act drain interacts with this — coordinate with the estate planner.

Federal benefits. Social Security retirement and disability benefits, VA benefits, federal civil-service retirement (FERS/CSRS), and railroad retirement are protected by their authorizing statutes from most ordinary creditors. The exceptions worth knowing: child support, alimony, federal tax debt, federally guaranteed student loans, and a handful of other federal debts can reach these benefits. State garnishment laws on top vary.