How can I use a retirement plan to protect assets?
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UPDATED: Jul 16, 2021
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If your retirement plan is qualified under the Federal Employee Retirement Income and Security Act (ERISA), your ownership in the plan is exempt. No third party is able to get to retirement funds held in ERISA qualified plans. This makes an ERISA qualified plan an excellent asset protection technique.
Conversely, a private retirement plan that is not ERISA-qualified is not automatically exempt from judgment creditors. This does not mean that the funds are non-exempt, it just means that formalities – such as filing a Claim of Exemption in the event of a levy – must be followed in order to protect these assets.
Self-employed retirement plans, IRAs and annuities are exempt only to the only to the extent provided by state law. For example, in California, the only non-ERISA retirement plan assets that are exempt are those necessary to provide for your support when you retire, and for the support of your spouse and dependents, taking into account all resources that are likely to be available for your support when you retire.
From an asset protection standpoint, you should consider maximizing the earnings that are placed into your ERISA retirement plan. In addition to the deferral of income tax, you obtain substantial protection against creditors while the funds remain in the retirement plan. In most instances, funds are protected until they are distributed out of the retirement plan and placed in your hands.