Do IRA and 401K Differ in Terms of Creditor Protection?

Do IRA and 401K Differ in Terms of Creditor Protection?

Both IRA and 401K are what's called Qualified Accounts.
Qualified Accounts have no Medicaid/Long-term Care protection.
If you were to need Nursing Home Care, anything inside your IRA or 401k would have to be spend down, whether it's in your name or in your spouse's name. They are both countable assets, meaning they count towards that nursing home or Medicaid protection.
But what they do offer is a form of creditor and bankruptcy protection.
But there is a difference. 401k falls under ERISA, so they fall under Federal, while IRA falls under State Law.
Another interesting distinction is that IRA's is protected up to $1.3 million from creditors and bankruptcies, while 401k's have unlimited protection.
So if protection from bankruptcy and asset protection is very important to you then maybe that is a reason why to keep money inside a 401k.

Keep in mind that even though you do have this Creditor Protection, it does not apply to the IRS nor does it protect from spousal claims.

Another easier option if liability or creditors are concerned would be to get Umbrella coverage. Typically you will get a million-dollar worth of coverage
for maybe $200 a year.


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