Individual Retirement Accounts (IRAs) and
ERSIA Qualified Plans
We receive many questions about whether IRAs or pension plans are protected from creditors.
Unlike some answers to questions which do not always give a bright line yes or no, the answer to questions about IRAs and qualified plans are straight forward.
1) ERSIA Qualified Plans
The following are ERISA QPs.
Profit Sharing Plan
Defined Benefit Plan
412(i) Defined Benefit Plan
Money Purchase Plan
Simply put, the above plans are asset protected from creditors by Federal law.
2) Non-ERISA plans
Simplified Employee Pension (SEP)
There are millions of people with billions of dollars in IRAs. Approximately 50% of the states have statutes which protect IRA assets from creditors. That means about 50% do not. What if you live in a state that does not protected?
Many uninformed will tell you not to worry about it because of the recent Supreme Court case. There has been a recent Supreme Court case addressing the issue of asset protection of IRAs in a “bankruptcy” case. The case changed the existing laws so that all IRAs are asset protected in a “bankruptcy” case. That sounds great, except 95% of the people who have significant wealth and need asset protection will not be filing bankruptcy when settling a lawsuit or paying off a jury verdict. Therefore, it is the APS™ opinion that the recent Supreme Courts case is of little good to those clients who live in states where the IRA is not fully protected by state law.
If you can’t use the state law to protect your IRA or the Supreme Court case, what do you do?
95% of the people who need asset protection also need a family limited partnership (FLP) or limited liability company (LLC) for other asset protection reasons and/or estate planning reasons. Once an LLC or FLP is created, the client who has a large IRA can “manage” the LLC or FLP. Once an LLL or FLP has a manager (which is effectively an employee) a profit sharing plan can be created. Once a profit sharing plan is created, the client/manager can roll his/her IRAs into the profit sharing plan where it will then be asset protected from creditors inside the ERISA governed plan.
3) Protection from the stock market
While not part of core domestic asset protection planning, part of the concept of “global” asset protection planning is protecting your money from downturns in the stock market.
Are you more likely to be sued by a creditor this year or lose money in the stock market? When you reach a certain age (and you’ll know that age when you get to it), it is much more important for you to never lose money in the stock market than it is to reach for double digit returns.
You can protect your money from downturns in the stock market using various methods/investments. This website is not a financial planning website, but we did want to give readers a little information on a few topics.
a) Equity indexed annuities (EIAs). Many clients will turn to EIAs because their account balances are guaranteed by an insurance company, the annual gains are locked in every year and the returns are pegged to the S&P 500 index. The downside to EIAs is that they have a cap usually on the growth. To read more about EIAs, please click here. If you would like help determining if EIAs are right for you, please contact a “Rated” advisor with a “G” (global) rating.
b) The Maximizer. The greed element to investing is very powerful. Many clients who should protect their money from downturns in the stock market with EIAs do not because they do not like the limited growth element to EIAs. In an effort to supercharge the returns of EIAs while still principally protecting 90% of your money each year from downturns in the stock market, a very bright advisor came up with the “Maximizer.” To read about the Maximizer, please click here. If you would like help determining if Maximizer is right for you, please contact a “Rated” advisor with a “G” (global) rating.