Which Retirement Accounts Are Protected in Michigan?

If you have a 401(k) or another employer-sponsored retirement plan, you’re in a strong position. Thanks to the Employee Retirement Income Security Act (ERISA), a powerful federal law, these accounts enjoy broad protections against lawsuits and creditors. In nearly all situations, including bankruptcy or civil litigation, your 401(k) funds remain off-limits to creditors, helping you safeguard what you’ve worked so hard to earn.

Traditional and Roth IRAs: Protected, But with Limits

In Michigan, both Traditional and Roth IRAs are protected from creditors, but only up to a certain amount. As of 2024, the protection cap is approximately $1.5 million, with adjustments made periodically to account for inflation. For most families, this safeguard is sufficient; however, any IRA balances exceeding this threshold may be at risk.

If you’re a high-net-worth individual or approaching retirement with substantial IRA savings, it’s crucial to consider these limits during your estate planning and asset protection discussions. Proper planning now can help ensure your hard-earned savings remain secure.

Inherited IRAs: No Protection Under Bankruptcy

Here’s where things become complicated: Inherited IRAs, accounts transferred to beneficiaries after the original owner passes away don’t enjoy the same creditor protections as traditional IRAs. Under federal bankruptcy law, inherited IRAs are fully accessible to creditors and are not shielded in bankruptcy proceedings.

This often catches families off guard, creating unexpected challenges when trying to pass on a legacy or support adult children financially. Careful estate planning is crucial to safeguard these assets and ensure your intentions are honored.

What This Means for Your Planning

Recognizing the distinction between protected and unprotected retirement accounts goes beyond innovative financial management; it’s a vital step in effective long-term planning. Here are a few proactive measures you can take:

1. Inventory Your Accounts: Identify all the retirement accounts you hold, along with their current balances and types.
2. Assess Your Exposure: If your profession or business increases your liability risk, you may need additional asset protection strategies.
3. Explore Trust Options: Transferring certain assets into a carefully designed trustcan provide greater security and more control over your legacy.

Being thorough and intentional now can help ensure your retirement savings stay safe for the future.

Start the Conversation

Protecting your retirement savings starts with understanding where you may be vulnerable and taking action before it’s too late. Whether you're planning or reviewing your current estate plan, it's worthwhile to have a conversation about how your retirement accounts fit into the broader picture.