Roth IRA Bankruptcy Protection?                                                                   

In some states, questions have arisen about whether Roth IRA proceeds are protected from the claims of creditors in the event of a bankruptcy. It seems that in most states, Roth IRA proceeds are NOT protected.

Many state statutes that offer creditor protection to the owners of traditional IRAs refer specifically to the Internal Revenue Code Section 408. When the Roth IRAs were adopted, they were permitted under a new IRS Code section "408A".

At present, protection appears to be available only in the states which do not specifically refer to section 408.

Legislators are likely to act to correct the issue, however, in the case of professionals at risk for malpractice litigation and anyone facing bankruptcy, care should be taken to be sure that the appropriate change has been made in the state of residency.