Can a Bank Account Be Garnished If it Has Retirement Funds in It?
If you owe money to creditors, you'll be happy to know that your retirement accounts are exempt from creditor claims. These retirement accounts include 401(k) plans, 403(b) plans, pensions, and a variety of other plans covered under the Employee Retirement Income Security Act. But, be aware of what can happen once you receive this money and deposit it into your regular bank account.
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Significance
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The Employee Retirement Income Security Act (ERISA) protects your retirement plans. This law prevents a third party from garnishing the contents of your retirement account. This naturally includes creditors. When you owe money to other people, you may receive payments from your retirement account, but a creditor cannot garnish these payments.
Benefit
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The benefit to you is that you get to keep your retirement benefits regardless of whether you owe money to someone else. These benefits, along with your Social Security and any pension money, will support you through your retirement. Your creditors may be able to take money from other accounts, but not directly from your retirement funds.
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Disadvantage
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The disadvantage to ERISA laws is they do not protect your regular bank accounts. Creditors may garnish these accounts. Because of this, a creditor can seize any money in your bank account. If so, you will lose that money for the payment of your debts. This could disrupt your retirement income and leave you without money to pay your bills if you have your money directly deposited into your bank account.
Prevention
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To avoid having your money taken, accept your retirement payments by check, if possible. Creditors cannot garnish these payments as long as you don't deposit them in your bank account. The downside to this is it might require that you pay all of your expenses via cash, cashier's checks or money orders.
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