Q. I just read your response to the mom concerned about her liability if her son has a car accident in a car she owns. If she is sued, is her pension or employer-sponsored 401(k) protected?
— Protecting myself too
A. You do have some important protections from lawsuits.
A majority of many people’s assets are held in retirement accounts, said Anthony Vignier, a certified financial planner and attorney with Vignier Investment Group in Kearny.
“The good news is that while some retirement accounts can be subject to a judgment, a majority of retirement accounts are not,” he said. “Retirement accounts set up under the Employee Benefits Security Administration (ERISA) are protected.”
A 401(k) plan is an ERISA account, Vignier said.
A 401(k) plan takes its name from the section of the Internal Revenue Code of 1978 that created them, he said. The plans are funded by employee pre-tax salary contributions and often matching contributions from the employer.
Contributions grow tax-free until withdrawn and the funds in these plans are portable, meaning that generally you can take the money with you when you leave your employer, typically by rolling it over into an Individual Retirement Account (IRA) or another 401(k), he said.
“The exception to this protection from judgments is in the case of divorce decrees or child support orders, such as Qualified Domestic Relations Orders,” he said. “IRAs, like the traditional IRA and the Roth IRA, are not covered by ERISA but New Jersey, unlike many other states, does offer protection to these IRA accounts from claims by judgment creditors including garnishments.”
So indeed you have lots of protections.
But keep in mind, Vignier warns, once retirement income from a protected account is deposited into a regular checking account, that account can be garnished.
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