IRA Bankruptcy Exemption Set to Increase April 1

Federal law limits the amount of IRA funds that are protected from creditors when the IRA owner files for bankruptcy (unlike 401(k) funds, which are fully protected from creditors in bankruptcy). Under current law, up to $1,362,800 in IRA funds are protected from creditors in bankruptcy. The limit is set to increase to $1,512,350 beginning April 1, 2022. The dollar amount is adjusted for inflation only every three years, so the new limit will apply through March 31, 2025. However, it's important for clients to remember that the laws in their state may also be relevant. Some states grant creditor protection for all IRA funds. Others even protect IRAs from being accessed to satisfy a legal judgement. For more information on the rules that apply to IRAs and inherited IRAs in bankruptcy, visit Tax Facts Online. Q 3695