Retirement accounts, annuities and life insurance

Listen instead

The same material, read aloud and told more loosely than it is written. Nothing is said in it that this page does not also say.

Pension plans and the federal rule

The strongest protection here is the one Congress wrote into every pension plan, and the Supreme Court carried it into bankruptcy.

Every pension plan must say that benefits under it may not be assigned or alienated. 29 U.S.C. 1056(d)(1)¹ states that as a requirement of the plan's own terms. The rule gives way to one thing: a qualified domestic relations order, which the same section says each plan must pay as the order directs. 29 U.S.C. 1056(d)(3)(A).

In bankruptcy, a restriction on transferring a debtor's beneficial interest in a trust that holds up under nonbankruptcy law holds up in the case too. 11 U.S.C. 541(c)(2)². For years the question was whether an ERISA plan was such a trust.

The Supreme Court answered it. A debtor's interest in an ERISA-qualified pension plan may be excluded from the bankruptcy estate, the plan's antialienation provision is an enforceable transfer restriction, and 'applicable nonbankruptcy law' reaches federal law such as ERISA. Patterson v. Shumate, 504 U.S. 753 (1992). So a plan interest that the antialienation rule protects never enters the estate at all. That is a different mechanism than claiming an exemption, and a sturdier one.

IRAs in New York and Florida

An IRA is money the debtor set up and paid into, which is exactly why it looks reachable until you read the exemption statutes.

New York solves the problem by a fiction it states as law. An IRA or Roth IRA is treated as a trust created by someone other than the judgment debtor, even where the debtor is the settlor and the depositor. CPLR 5205(c)(2)³. That brings it inside the exemption for property held in a trust a third person created. CPLR 5205(c)(1). The same subdivision reaches Keogh and corporate plans qualified under IRC 401, along with rollovers from them and IRC 457 plans.

New York goes one step further for bankruptcy. Those accounts are conclusively presumed to be spendthrift trusts for all purposes, including cases under the federal Bankruptcy Code. CPLR 5205(c)(3). Payments out of them are wholly exempt from income execution: the usual ninety percent exclusion becomes one hundred percent, and the court's power to find part unnecessary does not apply. CPLR 5205(d)(1).

Florida reaches the same result by a different route. Money payable from, or an interest in, a fund or account the IRS has preapproved as tax-exempt under Internal Revenue Code sections including 401(a), 403(b), 408, 408A and 457(b) is exempt from all claims of creditors. Fla. Stat. 222.21(2)(a)⁴. The account need not be covered by ERISA for that to apply. Fla. Stat. 222.21(2)(b). And an exempt account keeps the exemption after the owner dies through a direct transfer or eligible rollover, including to an inherited IRA. Fla. Stat. 222.21(2)(c).

The exceptions nobody mentions first

Neither state's exemption is complete, and the carve-outs are worth knowing before a creditor finds them.

Both states carve out family claims. New York's trust exemption does not impair rights under a qualified domestic relations order or under an order of support, alimony or maintenance. CPLR 5205(c)(4). Florida's retirement exemption does not apply against an alternate payee under a qualified domestic relations order or a surviving spouse's elective share. Fla. Stat. 222.21(2)(d).

New York has a timing trap of its own. Additions to one of these accounts are not exempt if made after the date 90 days before the claim was interposed, or if they are voidable transactions under the Debtor and Creditor Law. CPLR 5205(c)(5). Take a deposit made the week before a lawsuit: it falls within that 90-day window, and by the statute's terms it does not get the trust's shelter.

There is a bank account point that catches exempt money after it moves. Where payments reasonably identifiable as statutorily exempt were direct-deposited in the 45 days before a restraining notice or execution hit the bank, CPLR 5205(l)(1) exempts an amount the statute writes as $2,500. The Department of Financial Services publishes a current figure, which it gives as $3,425, effective April 1, 2024, with the next adjustment due on April 1, 2027.

The bankruptcy IRA cap

A debtor in bankruptcy chooses a list of exemptions. For IRAs the list carries a ceiling that an ordinary judgment never reaches.

An individual debtor exempts property under one of two alternatives. Either the federal list in 11 U.S.C. 522(d)⁵, or the state-law alternative. 11 U.S.C. 522(b)(1). The federal list drops away where the applicable state law specifically does not authorize it. 11 U.S.C. 522(b)(2). Florida residents may not use the federal list; the Florida exemptions apply instead. Fla. Stat. 222.20⁶. New York debtors face a pair of sections that read against each other: DCL 284⁷ says New York debtors are not authorized to exempt the 522(d) property, while DCL 285⁸ says, notwithstanding any inconsistent provision of law, an individual debtor may opt for the section 522 exemptions in lieu of the state ones. Which controls is a question for counsel, not this page.

Both alternatives cover retirement funds in a fund or account exempt from taxation under IRC 401, 403, 408, 408A, 414, 457 or 501(a). 11 U.S.C. 522(b)(3)(C). But traditional and Roth IRAs under IRC 408 and 408A carry a cap. 11 U.S.C. 522(n) limits the aggregate a debtor may exempt in those accounts, leaving out SEP and SIMPLE accounts and rollovers with their earnings, and a court may raise it if the interests of justice require.

The cap is adjusted every three years. 11 U.S.C. 104(a)⁹. As of April 1, 2025 the figure is $1,711,975, and the adjustment does not apply to cases commenced before it. 11 U.S.C. 104(c). For most debtors the cap is a ceiling they will never touch. For the ones who do, it is the whole of the fight.

Annuities and the cash value of life insurance

Life insurance and annuities are a separate world with their own statutes, and the one word to watch is whether the money runs to a third person or back to the debtor.

Florida shields a resident's cash surrender value of life insurance and the proceeds of annuity contracts issued to residents from attachment, garnishment or legal process by creditors of the insured or the annuity beneficiary, unless the policy or contract was made for that creditor's benefit. Fla. Stat. 222.14¹⁰. When a resident dies leaving insurance on his or her life, the proceeds go to the named beneficiary free of the insured's creditors unless the policy or an assignment says otherwise; insurance payable to the estate becomes part of the estate. Fla. Stat. 222.13(1)¹¹.

New York draws the line at who benefits. When a person insures his or her own life in favor of a third person, that third person takes the proceeds and avails against the insured's creditors, personal representatives, trustees in bankruptcy and receivers. Insurance Law 3212(b)(1)¹². Those proceeds and avails include cash surrender and loan values. Insurance Law 3212(a)(1). But the insured is not a third person. Insurance Law 3212(b)(4)(A). The debtor who insured their own life for their own benefit does not get this shelter.

New York annuities bend rather than block. Benefits due to the annuitant who paid for the contract are not subject to execution. Insurance Law 3212(d)(1). Yet a court may order the annuitant to pay part of the benefits toward a judgment in installments, as appears just and proper with regard for the debtor's and family's reasonable needs. Insurance Law 3212(d)(2). An assignment or change of beneficiary made with actual intent to hinder, delay or defraud creditors gets no protection, and the Debtor and Creditor Law remedies apply. Insurance Law 3212(e)(1). New York also exempts a debtor's right to accelerate a death benefit or to enter a viatical settlement. CPLR 5205(i). The federal list, for a debtor who reaches it, exempts any unmatured life insurance contract other than credit life insurance, and the right to a payment under a pension, annuity or similar plan on account of illness, disability, death, age or length of service, to the extent reasonably necessary for support, with an exception for certain non-qualified insider plans paying on age or length of service. 11 U.S.C. 522(d)(7), 522(d)(10)(E).

What this does not settle

Three facts decide almost everything above, and all three come from outside these statutes.

What kind of account it is. Which state's law governs. And whether a bankruptcy is in the picture, which can swap the whole exemption scheme and turn a reachable interest into property that never enters the estate. A page cannot supply any of the three from its own text.

The New York bankruptcy choice between DCL 284 and DCL 285 is live enough that this page states both sections and resolves neither. Whether a particular annuity or account qualifies under the Internal Revenue Code the exemptions name is a tax question these statutes assume rather than answer. And a judgment against both spouses, or against a plan beneficiary who is not the debtor, is a different situation than the one described here.

Nobody writing this is a lawyer and none of it is advice. Whether an IRA, a pension interest or a policy's cash value stands between a judgment and the money is a question for counsel with the file open. What a page can do is narrower. It can tell you which statute governs the account in front of you and where that statute leaves a door open. The Florida homestead page carries the rest of the Florida picture.