Does Bankruptcy Protect Your 401K?

Yes, your 401(k) is generally safe in bankruptcy. According to Bankrate, your retirement funds are protected by the Employee Retirement Income Security Act (ERISA) if you file for bankruptcy. The FindLaw website also confirms that your 401(k) or IRA retirement accounts are protected from bankruptcy. However, there are some cases where your 401(k) assets can be seized, such as if you have outstanding unpaid income tax, if you have criminal penalties/fines, or if someone files a qualified domestic relations order. It is advisable to avoid using your 401(k) to pay off debt due to the penalties, fees, and taxes.

Defined contribution plans are considered a protected asset under the Employee Retirement Income Security Act (ERISA) and are thus safe from creditors during bankruptcy. According to the U.S. Department of Labor, these types of retirement savings accounts are considered defined contribution plans:

• Traditional 401(k)s
• Safe harbor 401(k)s
• SIMPLE 401(k)s
• Automatic enrollment 401(k)s
• Simplified Employee Pension Plans (SEP)
• SIMPLE IRA plans
• Employee stock ownership plans (ESOP)
• Profit-sharing plans

Please note that the exact bankruptcy exemptions and exclusions are determined by your state, so it is recommended to work with a bankruptcy attorney to verify how your 401(k) will be treated.