What if your judgment debtor has a non-ERISA IRA retirement account, can that account be levied to satisfy your judgment?

One of many judgment-related articles: I am a judgment broker, not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

If you levy a non-ERISA IRA, you will probably get a call from the brokerage’s levy department, saying they have frozen the judgment debtor’s account, and are investigating whether that IRA account is exempted or not from garnishments.

In California, CCP 704.115 indicates that an IRA is exempt only to the extent necessary to provide for the support of the judgment debtor when they retire. If the debtor is currently not retired, it may seem the IRA account can be levied.

However, it does not matter whether the debtor is retired or not. The question is, how much money the debtor will need to live on in the future, whether currently retired or still working. So, it is very likely that some of their IRA money will be exempt.

The factors to consider include the debtor’s current age, their likelihood of further contributions to their IRA in years to come before retirement, the debtor’s other resources available for retirement, their earning potential, and the debtor and their dependent’s likely needs at retirement, based on factors such as their health.

The amount exempted under California’s CCP 704.115 (e) varies a lot for different cases. A rule of thumb is that if the IRA funds are less than $250K, they are likely to be exempt, but if more than $250K then there is a chance of getting some of them. This rule often has exceptions.

Generally, if the IRA funds are less than $150K, you are probably wasting your time. I am not aware of any case where a creditor in recent years has successfully levied an IRA that was less than $150K.

However, contributions to IRAs are sometimes fraudulent transfers, especially if there was a large sum recently added. Fraud is usually difficult to prove, and much tougher to prove if the debtor has been making small payments all along.

Also, the taxes and penalties that the debtor will be subject to, are mandatory exemption amounts. It is sometimes good news when the debtor has borrowed against their IRA, because that amount will no longer have the protection of an IRA. Of course, you would usually have to subpoena such records.