Creditors got a judgment against you and you're worried about your retirement savings. Good news: California provides near-total protection for retirement accounts - your nest egg is safe.
Under CCP 704.115, retirement accounts are exempt from enforcement of a money judgment. This is one of the broadest exemptions in California law - unlike most exemptions, there's no dollar cap.
The exemption covers the account itself and payments from the account. Whether your retirement money is sitting in an account or being distributed to you monthly, creditors generally can't touch it.
Unlike the homestead exemption (capped around $600K) or vehicle exemption (about $3,325), the retirement exemption has no dollar cap. Whether you have $10,000 or $10 million in your 401(k), it's all protected from judgment creditors.
Employer-sponsored plans like 401(k)s are protected by federal ERISA law, which preempts state creditor claims.
IRAs and non-ERISA plans are protected by California's CCP 704.115, covering all private retirement plans.
When you withdraw money, it remains exempt to the extent reasonably necessary for your support.
While retirement accounts themselves are 100% exempt, there's a nuance when money is distributed. Under CCP 704.115(b), distributions are exempt only to the extent "necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor."
In practice, this means:
Taking a large lump-sum withdrawal and putting it in a regular bank account is risky. Once the money is in a checking or savings account, the creditor can levy it. You'll have to prove the exempt source, and amounts beyond your support needs may be vulnerable. Leave retirement money in retirement accounts.
The retirement exemption is broad, but some creditors can still reach your retirement savings:
Support orders can reach retirement accounts. Under federal law (26 USC 401(a)(13)), a Qualified Domestic Relations Order (QDRO) can divide retirement accounts in divorce. Child support enforcement agencies can also garnish retirement benefits.
The IRS has special powers that override most exemptions. They can levy retirement accounts for unpaid federal taxes, though they often use other collection methods first.
Court-ordered restitution in criminal cases may be able to reach retirement accounts in some circumstances.
If you make unusually large retirement contributions specifically to hide assets from creditors, those contributions may be clawed back as fraudulent transfers under Civil Code 3439.04.
Courts look unfavorably on sudden large retirement contributions made after a lawsuit is filed or judgment entered. Making maximum 401(k) contributions during normal employment is fine. Liquidating assets and dumping them into an IRA right before a creditor can collect is fraud.
Social Security retirement benefits have their own special protection under both federal and state law:
When exempt funds (Social Security, retirement distributions) are deposited in a regular bank account and then levied, you must be able to trace the funds back to their exempt source. Keep records of deposits. Commingling exempt and non-exempt funds makes this harder.
No. Creditors cannot force you to withdraw money from your retirement account. The exemption protects both the account and your right to leave the money there. A creditor can't compel distribution. They can only potentially reach money after you voluntarily withdraw it (and even then, support needs are protected).
A rollover from an employer plan to an IRA maintains protection. The money remains exempt. However, keep records of the rollover so you can prove the funds came from an exempt source. Direct rollovers (trustee-to-trustee) are cleaner than taking a distribution and then depositing in an IRA.
Generally yes. Your spouse's retirement account is their separate property (in California community property terms). Your judgment creditor can only reach your assets, not your spouse's. However, if you live in a community property state and the debt is a community debt, it's more complicated. Consult an attorney for your specific situation.
This is a complex area. Under federal bankruptcy law, inherited IRAs are not protected. California's CCP 704.115 is broader and may protect inherited IRAs in state court judgment enforcement. However, the law is less clear than for your own retirement accounts. If you have an inherited IRA and face a judgment, get specific legal advice.
Normal retirement contributions made as part of your regular financial planning are protected. However, unusually large contributions made specifically to avoid creditors can be reversed as fraudulent transfers. The timing and circumstances matter. Contributing the maximum to your 401(k) every year? Fine. Suddenly contributing $50,000 to an IRA after getting sued? Problematic.
The IRS has special powers that override most exemptions. They can levy retirement accounts for unpaid federal taxes. However, they typically try other collection methods first (wage garnishment, bank levies on regular accounts, property seizure). If you owe the IRS, work out a payment plan before they go after retirement funds.
I help Californians protect their retirement accounts from judgment creditors. If a creditor is threatening your 401(k) or pension, let's discuss your options.