NOW YOU KNOW: The ONLY difference between a Rollover IRA and A Contributory IRA – Bankruptcy Limits

As you may know, Rollover IRA’s and Contributory IRA’s are technically now the same. You can contribute annually to a rollover IRA, just like a contributory IRA.  The bankruptcy limits is the only thing that creates a distinction. 

How IRA Bankruptcy Protection Works

IRA bankruptcy protection covers all of the conventional individual retirement accounts, including traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and rollover IRAs. In some cases, protection extends up to a certain dollar amount, which typically increases on a periodic basis.

Here is a summary of IRA bankruptcy protection, according to BAPCPA, based on the type of IRA:

  • Traditional IRAs and Roth IRAs: Historically, the limits on bankruptcy protection for IRAs have been adjusted every three years. The most recent adjustment was in 2019 when the limit was raised to $1,362,800.
  • SEP IRAs and SIMPLE IRAs: These IRAs are designed for self-employed individuals and small businesses. They receive the same protection as traditional IRAs and Roth IRAs, but up to an unlimited amount.
  • Rollover IRAs: BAPCPA identifies rollover IRAs as a traditional IRA or Roth IRA that was originally funded by a rollover transfer from an employer-sponsored retirement plan such as a traditional 401(k) or Roth 401(k). Like SEP and SIMPLE IRAs, protection on these accounts is not capped.2

Louis Barajas, MBA, CFP®, EA