Does a SEP IRA Have the Same ERISA Protections as a 401(k)?

Updated : Aug 29, 2019 in Articles

Does a SEP IRA Have the Same ERISA Protections as a 401(k)?


Ross from Ventura, California. He calls or writes in. He goes, “I enjoy watching you characters
on YouTube.” I don’t know if that’s a compliment or not,
Ross, but I appreciate that. Are we characters? I guess you are. He enjoys it, I think that means that it’s
a compliment. “Does a SEP IRA have the same protection through
ERISA as a 401(k)?” Well, Ross, for you even ask that question,
that means you’re up to no good. (laughs) Or you’re concerned about something. (laughs) Something must be going on. So what’s he talking about here, Al? ERISA protection. You’re actually better at explaining ERISA,
I’ll take the second part of the question. Well, it’s just the protection of looking
at if you’re going to get sued. So maybe he has rental properties, maybe he’s
going to file bankruptcy or something like that – ERISA is a code that was, what, back
in ’74 and it was really to protect retirees because – Studebaker, remember that car? Yeah I do. That kind of caused – they had like the first
pension plan or one of the first pension plans that blew up. Yeah I recall Studebaker because that’s how
I learned about stocks from my dad. Because he was rather upset because he had
invested in Studebaker stock and it had done so well for a while. Yeah like probably Kodak and Blockbuster. Yeah. And then it didn’t. So when did this Studebaker pension fail? Like in the 70s. Because ERISA was established in ’74 so it
had a been around there. So with this was looking at, “hey, we need
to have certain protections within the overall retirement planning system.” And so then that was the birth of the 401(k)
plan, because if companies weren’t necessarily responsible enough to fund the overall pension
and pay their promised, I guess, liabilities, then the father of the 401(k) kind of came
out, I forget his name, but he was like, “Well, let’s come up with defined contribution plans
where you can save into the plan.” Ted Benna. Yeah that’s right. Didn’t – we talked about him before? We talked about him and I’m trying to get
him on the show. Got it. Ted Benna. He’s ignoring us at the moment. Yeah well, whatever Ted. (laughs) We are such a quality show. And well anyway, so ERISA has these protections
in place, just to keep this thing very high level. And those are under section 401(k) plans. So if I keep my money in a 401(k) plan and
I get sued because I have a rental property and someone breaks their leg and because of
negligence or something like that, well if it’s under a 401(k) plan then it’s protected. OJ Simpson’s pension plan is protected. Because he lost a civil suit with… allegedly
killing people. (laughs) It was allegedly. (laughs) And so his NFL pension is protected. But other assets they could seize because
they’re not under this type of protection. So what Ross is asking us, he’s like, “I understand
that there’s some level of protection in a 401(k) plan. Is there the same level of protection in an
IRA? And the answer is… kinda. Yeah. So I’m going to tell you what I know, and
I’m also going to tell you what I am less sure about – and check with your attorney. OK, is that fair? Yeah that’s a very good CYA. Every time I give an answer now I’m gonna do that. (laughs) Please double check before any filing deadlines. (laughs) I’m pretty clear on that – April 15th. Anyway so you are correct with regards to
bankruptcy protection on the ERISA plans 401(k)s. It’s unlimited, fully protected. With regards to IRAs, they actually just increased
the amount on April 1st of this year. It’s $1,362,800. That’s the amount of IRA that is protected
upon bankruptcy. Now, if you had an IRA that’s a rollover from
a 401(k), that still gets unlimited treatment. And what Ed Slott recommends, he’s one of
the IRA gurus in the country, he recommends – although it’s not required that you keep
those rollover funds in a separate IRA, if you’re concerned about this so, it’s really
clear that all of that stuff came from your 401(k) and has unlimited protection. But then there is… now, on a civil suit,
there are some other limitations there. Yeah I’m not going to get into civil suits
because I’m not an attorney. I don’t know what the rules are. And it’s all state by state. So you’ve got the federal law and you’ve got
each state has their own laws in regards to some of that protection. That’s true too. And we’re not going to even try to answer
that. And then furthermore, I will say this, according
to Ed Slott, this article that I have, he says, “employer-sponsored SEP IRAs and simple
IRAs are fully protected – just like 401(k)s. And so what I’m not clear on is what if it’s
your own SEP IRA and you’re the employer. Right, you’re the employer and employee. I don’t know the answer to that, maybe one
of our attorney friends listening does, but I’m not clear on that.

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