Many believe that creditors cannot touch their retirement savings. But in many states (including Minnesota) that is frequently not true.

If you have an ERISA-qualified 401(k) or pension plan, your savings have broad protection from ordinary creditors. Federal law requires that the benefits in such a plan “may not be assigned or alienated” (ERISA § 206(d)(1), 29 U.S.C. § 1056(d)(1)), which generally shields the money from garnishment, attachment, and similar creditor remedies, both outside and inside bankruptcy. The United States Supreme Court confirmed in Patterson v. Shumate, 504 U.S. 753 (1992), that this anti-alienation restriction is enforceable, so your interest in an ERISA-qualified plan stays out of the bankruptcy estate.

That protection is strong, but it is not absolute, and it is not limited to just two exceptions. The recognized carve-outs include:

  • A qualified domestic relations order (QDRO) dividing the account in a divorce, legal separation, or child-support matter (29 U.S.C. § 1056(d)(3)).
  • An offset against your benefit for amounts you are ordered to pay the plan because of a crime involving the plan or a breach of fiduciary duty to the plan (29 U.S.C. § 1056(d)(4)).
  • A federal tax levy, which the IRS may enforce against the plan for unpaid federal taxes notwithstanding the anti-alienation rule (26 U.S.C. § 6334(c)).
  • Federal criminal restitution and fines collected under the Mandatory Victims Restitution Act (18 U.S.C. § 3613).
  • A limited voluntary, revocable assignment of up to 10 percent of a benefit payment (29 U.S.C. § 1056(d)(2)).

A qualified 401(k) is also a plan you can borrow against where the plan permits, because a loan against your own account is not a prohibited alienation.

One caution on the “Solo 401(k)” (a one-participant plan covering only the business owner, or the owner and spouse, with no other employees): because the owner and spouse are not treated as “employees,” the plan falls outside Title I of ERISA (29 C.F.R. § 2510.3-3(b)-(c)) and so does not carry the ERISA anti-alienation shield against ordinary creditors. In bankruptcy, though, the gap largely closes: a solo 401(k) is a tax-qualified plan under Internal Revenue Code section 401(a), and retirement funds in a section 401-qualified account are exempt under 11 U.S.C. § 522(b)(3)(C) and (d)(12). So a solo plan is not unprotected in bankruptcy; the weaker spot is state-creditor collection outside bankruptcy. Consult a professional about your specific plan.

In contrast, standard IRAs and other non-ERISA plans (such as government or church pensions) are not covered by ERISA’s anti-alienation rule, so their protection from creditors depends on state exemption law. In Minnesota, that protection is capped. The statutory exemptions are found in Minn. Stat. § 550.37:

Subdivision 1. Exemption. The property mentioned in this section is not liable to attachment, garnishment, or sale on any final process, issued from any court.

Subd. 24. Employee benefits. (a) The debtor’s right to receive present or future payments, or payments received by the debtor, under a stock bonus, pension, profit sharing, annuity, individual retirement account, Roth IRA, individual retirement annuity, simplified employee pension, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent of the debtor’s aggregate interest under all plans and contracts up to a present value of $81,000 and additional amounts under all the plans and contracts to the extent reasonably necessary for the support of the debtor and any spouse or dependent of the debtor. (emphasis added)

The present-value cap in subdivision 24 is not a fixed number. It is adjusted for inflation under subdivision 4a, which moves the statute’s dollar amounts with the federal price deflator, with adjustments taking effect on July 1 of each even-numbered year. The base figure was $30,000; through successive cost-of-living adjustments, the cap stands at a present value of $81,000 for the period from July 1, 2024, through June 30, 2026. The Minnesota Department of Commerce has set the next figure at $84,000, effective July 1, 2026. Older numbers you may still see in print, including $30,000 and $75,000, are stale.

Read the cap as a floor of automatic protection, not an absolute ceiling. Beyond the capped amount, subdivision 24(a) also exempts “additional amounts . . . to the extent reasonably necessary for the support of the debtor and any spouse or dependent of the debtor.” A Minnesota court applying that caveat asks whether you genuinely need the funds for retirement, and where the facts indicate you will be able to replenish the fund, an additional above-cap exemption will be disallowed. It is not, as is sometimes said, a rule “narrowly construed against debtors.” Minnesota exemption statutes are construed in favor of debtors, and the one Minnesota Court of Appeals decision often cited on this point, Halliday v. Halliday, No. C4-96-2347, 1997 WL 396233 (Minn. Ct. App. July 15, 1997), is unpublished and therefore not precedential under Minn. Stat. § 480A.08, subd. 3. It reversed and remanded an above-cap exemption because the record was silent on the debtor’s retirement needs, applying the principle that an above-cap exemption is disallowed where the facts indicate the debtor can replenish the fund; it announced no canon of narrow construction.

Many of the same professionals (doctors, lawyers, business owners, and others) who are more likely to have substantial retirement savings are also at higher-than-average risk of being sued individually. The difference between an ERISA-protected retirement plan and a standard IRA or other non-protected plan could be the difference between preserving your retirement savings and losing them.

Are My Retirement Savings Safe if I Declare Bankruptcy?

Generally yes, but the protection is not uniform across account types. ERISA-qualified plans such as 401(k)s, pensions, and profit-sharing plans get the broadest treatment. Under 11 U.S.C. § 541(c)(2), a restriction on the transfer of the debtor’s beneficial interest that is enforceable under applicable nonbankruptcy law keeps that interest out of the bankruptcy estate, with no dollar cap. In Patterson v. Shumate, the Supreme Court held that ERISA’s anti-alienation provision is such an enforceable transfer restriction, so those funds are excluded from the estate. Traditional and Roth IRAs are exempt under 11 U.S.C. § 522(b)(3)(C) or (d)(12), but only up to the per-debtor ceiling in 11 U.S.C. § 522(n). That ceiling is indexed for inflation every three years under 11 U.S.C. § 104. Although the codified statute still reads $1,000,000, the operative cap is $1,711,975 for cases filed on or after April 1, 2025. The cap does not count funds you rolled over from an ERISA-qualified plan, or the earnings on them, so a rollover IRA can be protected well beyond the cap, and SEP and SIMPLE IRAs sit outside the section 522(n) ceiling entirely. The numbers and the planning move turn on the details of your accounts, so consult a professional.