Significance

• IRAs are protected by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This act protects IRAs from creditors up to $1 million. Any amount of money beyond this amount is not protected. If you file for bankruptcy, your creditors cannot automatically take what's in your IRA. You may invest and contribute to your account as usual, as long as the contributed amounts after the bankruptcy are not done to defraud your creditors or avoid paying them in accordance with the terms of the bankruptcy.
  
  

Benefit

• The benefit to you is that you get to keep your retirement savings. You won't have to start saving for retirement all over again. This could be particularly helpful if you are close to retirement. Having your retirement savings taken away from you could delay or prevent you from retiring.
  
  

Disadvantage

• The disadvantage with IRAs is that they are not wholly protected from creditors. According to Wall Street Journal writer Kelly Greene, IRAs are not protected from all lawsuits, just bankruptcy. If you happen to be sued, the court and the state where you live will determine to what extent your IRA can be attached and used to satisfy a judgment.
  
  

Consideration

• If you are worried about a lawsuit, consider investing in a 401k plan. A 401k plan provides significantly more protections under the Employee Retirement Income Security Act (ERISA). This law prevents a creditor from taking any of your 401k plan balance as a result of a judgment being issued against you.