Can You Keep Your Retirement Accounts in Bankruptcy?

Most retirement accounts, including 401(k)s and IRAs, are protected when you file for bankruptcy. 401(k)s and other ERISA-qualified plans are fully protected with no dollar limit, while IRAs are protected only up to a federal cap of $1,711,975 per filer, and a few retirement funds get no protection at all. Ultimately, the protected status will depend on the type of account, if the funds have been withdrawn, and whether bankruptcy exemptions are available to protect the funds.

401(k)s and Other ERISA-Qualified Plans Are Fully Protected

Under federal law, an ERISA-qualified retirement plan isn't property included in your bankruptcy estate and can't be taken from you by the bankruptcy trustee appointed to your case in Chapter 7, and you won't be required to pay more in your repayment plan if you file for Chapter 13. An ERISA plan is established by an employer, meets certain IRS guidelines, and is tax-exempt. Examples include:

• 401(k)s
• 403(b) or profit-sharing plans
• 457(b) deferred compensation plans
• governmental plans, and
• tax-exempt organizational retirement plans.

Check with your employer if you're unsure whether your retirement plan is an ERISA-qualified account. (11 U.S.C. § 541(c)(2)).

IRAs Are Protected Up to $1,711,975 Through March 2028

Your traditional or Roth IRA is protected up to $1,711,975 combined. IRAs are non-ERISA accounts, so they don't get unlimited protection like a 401(k). Still, the cap is generous enough that most filers cover their entire account and lose nothing to the bankruptcy trustee. The accounts in this category include:

• traditional IRAs
• Roth IRAs
• SEP-IRAs (for small business owners)
• SIMPLE IRAs (for self-employed individuals), and
• similar retirement plans.

If you have more than one traditional or Roth IRA, the $1,711,975 cap applies to your combined balance, not per account, and the trustee can take any amount over that limit to repay creditors. (11 U.S.C. § 522(n); amounts apply to bankruptcy cases filed between April 1, 2025, and March 31, 2028.)

Tip. Many states' bankruptcy exemptions protect state, county, and city retirement accounts on top of federal protections. Filers who use their state's exemptions can also use the federal nonbankruptcy exemptions, which cover many additional federal retirement accounts and benefits.

Inherited IRAs Aren't Protected in Bankruptcy

An inherited IRA doesn't get the same protection as your own retirement account. It's a nonexempt asset that can be recovered in Chapter 7 and figured into your Chapter 13 payment for the benefit of creditors. The U.S. Supreme Court ruled in Clark v. Rameker that because the person who inherits an IRA can withdraw funds without penalty, it doesn't qualify as a protected retirement fund.

401(k) Loans Survive Bankruptcy

If you took out a loan against your 401(k) and it's outstanding when you file for bankruptcy, the bankruptcy won't eliminate it. Because it's actually a debt to yourself, you'll still owe it after Chapter 7, and you won't be able to use Chapter 13 funds to pay it off. Speak with your bankruptcy lawyer about whether a default will trigger a taxable early withdrawal penalty.

Some Retirement Funds Lose Protection Entirely

Once you withdraw money from a retirement plan, the federal exemption no longer covers it. Withdrawn funds need a separate exemption, such as a cash or wildcard exemption, to stay protected. Savings accounts, investment accounts, stock option plans, and similar assets are rarely safe in bankruptcy.

Also, if you owe taxes, the IRS can reach your retirement assets with a valid tax lien against you. Learn more about what happens to bank accounts, pensions, and retirement funds in bankruptcy.

Bottom Line: Don't Drain Protected Funds Before Filing

When possible, you'll want to leave your protected retirement funds alone before filing. Since bankruptcy already safeguards these accounts, dipping into them to pay off debts that can be "discharged" or eliminated in bankruptcy only costs you money you didn't need to spend; treat it as a last resort, not a first step.

Talk to a local bankruptcy lawyer before filing to confirm how these rules apply to your specific accounts and state. Emerging from bankruptcy with your retirement in place gives you the strongest possible fresh start.