Will I Lose My 401(k) or IRA If I File for Bankruptcy in Massachusetts?

Legally reviewed by Massachusetts bankruptcy attorney Michael Goldstein · Last reviewed September 13, 2026

Most people asking this question are already thinking about cashing out the account to avoid filing. That is almost always the more expensive choice, and the reason why is in the statute.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. This article covers bankruptcy assistance under Title 11 of the U.S. Code.

Not sure which row describes your accounts? Schedule a consultation with Attorney Goldstein before you move any money.

Is my 401(k) safe if I file bankruptcy in Massachusetts?

Yes, and for a reason that surprises most people. Your 401(k) is not protected because it is exempt property. It never becomes part of the bankruptcy estate in the first place.

Section 541(c)(2) keeps out of the estate any beneficial interest in a trust subject to a transfer restriction enforceable under applicable nonbankruptcy law. In Patterson v. Shumate, 504 U.S. 753 (1992), the Supreme Court held that ERISA’s anti-alienation provision is exactly that kind of restriction. A properly qualified 401(k), 403(b), or defined-benefit pension sits outside the case with no cap on the balance. Whether the account holds $40,000 or $900,000 does not change the analysis.

What Massachusetts law adds

Mass. Gen. Laws ch. 235, §34A protects your interest in ERISA plans, Keogh plans, corporate plans under IRC §401(a) that fall outside ERISA, Simplified Employee Plans, 403(b) annuity plans, and individual retirement accounts, shielding them from attachment and from the operation of any law relating to insolvency. The statute carves out two situations: court orders concerning divorce, separate maintenance, or child support, and court orders requiring payment of a monetary penalty or restitution after a criminal conviction.

For the wider picture, see what property you keep when you file. If you are considering liquidation, the Chapter 7 bankruptcy in Massachusetts page explains how exemptions, eligibility, and discharge fit together in the full case.

How much of my IRA is protected in bankruptcy?

$1,711,975, combined across every traditional and Roth IRA you own, for cases filed between April 1, 2025 and March 31, 2028. That figure comes from §522(n) as adjusted by the Judicial Conference notice at 90 FR 8941.

Two details that change the answer more often than the cap does

• Rollovers do not count toward the cap. Rollover contributions and the earnings on them are excluded from the calculation, so someone who rolled a large 401(k) into an IRA is generally nowhere near the limit even at a high balance.
• SEP and SIMPLE IRAs sit outside the cap entirely. Section 522(n) applies the limit to accounts under IRC §408 and §408A “other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p).”

Now the honest follow-up. For almost everyone filing a consumer bankruptcy in Massachusetts, this cap is a ceiling they will never approach. In the cases this office files, retirement balances are generally well under $1 million and the exemption is claimed without objection from the trustee. The number is worth knowing because people search for it. It is rarely what actually puts a retirement account at risk.

What does put an account at risk is whether the money is still in the account at all.

Does it matter whether I use Massachusetts or federal exemptions?

For most property, yes, a great deal. For retirement accounts, less than you would expect, because of one federal provision that applies either way.

Massachusetts lets a filer choose between the state exemption system and the federal system under 11 U.S.C. §522(b). You elect one system for the entire case. The provision that cuts across that choice is §522(b)(3)(C), which exempts retirement funds held in an account exempt from taxation under IRC §401, §403, §408, §408A, §414, §457, or §501(a). It sits inside the state-exemption paragraph, so a filer claiming Massachusetts exemptions can still claim it.

So a filer who was putting aggressive amounts into an IRA while falling behind on credit cards can lose the state exemption on the excess. That is usually where §522(b)(3)(C) does its work, because the federal retirement-funds exemption carries no equivalent 7 percent rule.

The broader election affects your home, car, personal property, and cash together. That comparison is worked through in the article on what happens to cash in your bank account.

What happens if I already took money out of my 401(k)?

Once the money leaves the account, the protection leaves with it. Withdrawn funds sitting in checking or savings are ordinary cash, covered only by the cash and wildcard exemptions, which are small by comparison. The bank account article works through those figures.

What a $40,000 withdrawal actually costs

Roughly $27,000 of the $40,000 survives the tax bill, before Massachusetts income tax, and it lands in a bank account where most of it is exposed to creditors. Had the same $40,000 stayed in the 401(k), all of it would have been outside the case.

The 60-day window most people do not know about

Section 522(b)(4)(C) covers the related point: a direct transfer from one qualifying account to another does not break the exemption. Moving a 401(k) to an IRA through a trustee-to-trustee transfer does not, by itself, cost you the protection.

Every withdrawal and transfer in the months before filing gets disclosed on your schedules and reviewed by the trustee. If you have already made one, bring the statements to a consultation rather than working out the consequences on your own.

What happens to my 401(k) loan if I file bankruptcy?

The loan is not discharged, and the payroll deduction keeps running after you file.

Section 362(b)(19) creates an exception to the automatic stay for wages withheld to repay a loan from a retirement plan under IRC §72(p) or ERISA §408(b)(1). In Chapter 13, 11 U.S.C. §1322(f) goes further: a plan may not materially alter the terms of such a loan, and amounts required to repay it do not count as disposable income under §1325.

Chapter 7 treats this differently and courts are not uniform, so whether the repayment helps you qualify is worth asking about rather than assuming. One timing trap applies in either chapter: if the loan is paid off partway through a Chapter 13 plan, the money that was going to loan repayment generally becomes available to creditors, and the plan payment may have to increase.

Can I keep contributing to my 401(k) during a Chapter 13 case in Massachusetts?

In this district, generally yes, if the contributions are consistent with what you were already doing.

Section 541(b)(7) excludes from the estate wages withheld by an employer as contributions to a qualifying retirement plan, and attaches a sentence providing that such amounts “shall not constitute disposable income as defined in section 1325(b)(2).” Courts have spent two decades disagreeing about how far that sentence reaches.

The Massachusetts decision that controls

In re Drapeau, 485 B.R. 29 (Bankr. D. Mass. 2013), held that post-petition voluntary retirement contributions are excluded from disposable income, subject to a showing of good faith that “will often turn on whether a debtor has made contributions in similar amounts over an extended period of time.” The opinion also treats a contribution history temporarily interrupted by something outside the debtor’s control as clearing that hurdle.

Why the same facts come out differently elsewhere

In Penfound v. Ruskin (In re Penfound), 7 F.4th 527 (6th Cir. 2021), the debtor had contributed to a 401(k) for roughly 24 years, lost access when he moved to an employer offering no plan, then resumed at a new job shortly before filing. The Sixth Circuit refused to let him shield the contributions because he had made none during the six months before the petition, and said that result holds even where the debtor had no ability to contribute during that window.

The First Circuit has not decided the question. For a case filed in Massachusetts, Drapeau is the decision on the ground, and the filer who paused contributions during a layoff and wants to resume them is in materially better shape here than in Michigan or Ohio.

A documented contribution history is an asset. Starting contributions, or sharply increasing them, shortly before filing is what draws an objection. How your own history reads is a question for a consultation before the plan is drafted. More on the plan itself is on the Chapter 13 bankruptcy page.

Is an inherited IRA protected in bankruptcy?

Generally no, if you inherited it from someone other than a spouse.

In Clark v. Rameker, 573 U.S. 122 (2014), a unanimous Supreme Court held that funds in an inherited IRA are not “retirement funds” within the meaning of §522(b)(3)(C). The Court gave three reasons: the holder cannot make additional contributions, must take required minimum distributions regardless of age, and can withdraw the entire balance at any time without penalty.

A surviving spouse who rolls an inherited IRA into an IRA of their own stands in a different position, because the account becomes the spouse’s own retirement account. Whether ch. 235, §34A reaches an inherited IRA is unresolved in Massachusetts, and no published decision addresses it.

Anyone holding an inherited IRA, or expecting to inherit one, should raise it before a petition is filed. The timing of a filing relative to an inheritance can change the outcome.

Are my pension and Social Security safe if I am already retired?

For Massachusetts state and municipal employees, teachers, police, and firefighters, Mass. Gen. Laws ch. 32, §19 provides that a member’s rights to an annuity, pension, or retirement allowance, and all rights in the funds of the retirement system, are exempt from taxation, exempt “from the operation of any law relating to bankruptcy or insolvency,” and cannot be attached or taken on execution. The statute carves out support orders and the assignment of marital property in a divorce.

Social Security is protected twice. 42 U.S.C. §407 shields benefits from execution, levy, attachment, garnishment, and other legal process, and from the operation of any bankruptcy or insolvency law. Separately, 11 U.S.C. §101(10A)(B) excludes Social Security Act benefits from current monthly income, keeping them out of the Chapter 7 means test and the Chapter 13 disposable income calculation.

When would a trustee challenge a retirement account?

Rarely, and for a short list of reasons:

• The account is not what it is called. A brokerage or investment account informally described as retirement savings does not qualify under §522(b)(3)(C).
• Combined traditional and Roth IRA balances above $1,711,975.
• Deposits into an individually maintained plan exceeding the ch. 235, §34A 7 percent limit.
• An inherited account.
• Money already distributed and sitting as cash.
• Transfers made with intent to hinder, delay, or defraud creditors, which can be challenged under 11 U.S.C. §548 and can put a discharge at risk under §727(a)(2).
• An account left off the schedules. An exempt account still has to be disclosed.

Some situations fall outside the general answer above and need their own review: a plan without a favorable IRS determination letter, an account subject to a qualified domestic relations order or support order, a one-participant plan for a self-employed filer, a retirement account held outside the United States, and an account pledged as security or already levied. The dollar figures here adjust every three years and apply to cases filed through March 31, 2028.

Common questions

Attorney Advertising. The information on this page is provided for general informational purposes only and is not legal advice for any individual case or situation. Viewing this website or contacting the firm does not, by itself, create an attorney-client relationship. Attorney Michael Goldstein is licensed to practice law in the Commonwealth of Massachusetts. Prior results do not guarantee a similar outcome. This law firm is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. Law Office of Michael Goldstein, 20 Cabot Blvd Ste 300, Mansfield, MA 02048.