Are rollover IRAs protected in bankruptcy?

Creditors in bankruptcy cannot reach amounts credited to the account of a common-law employee (or that of a business owner if the business employs common-law employees) in a qualified retirement plan. Under the landmark case Patterson v. Shumate, the U.S. Supreme Court ruled that qualified plan assets are excluded from the debtor's bankruptcy estate.

What happens if a qualified plan participant retires and rolls the plan assets into an individual retirement account (IRA)? Are those assets still protected? Under the Internal Revenue Code, the source of the asset is a tax-favored trust (the qualified retirement plan), and its destination (the IRA) is one as well. Further, the Code prohibits the pledge or assignment of a person's interest in either an IRA or a qualified retirement plan. So shouldn't the rollover IRA provide the same protection as the qualified retirement plan from which it was funded? Read More...