Are 401(k) Accounts 100% Protected in California?

When it comes to asset protection, many people assume their 401(k) accounts are untouchable. While 401(k)s enjoy some of the strongest protections available under both federal and state law, the reality is more nuanced — particularly in California. Below we break down how 401(k) accounts and IRAs are treated in bankruptcy, outside of bankruptcy, and how California law interacts with federal law.

1. Federal Protection Under ERISA

Most employer-sponsored 401(k) plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides broad protections:

• Bankruptcy: In a bankruptcy proceeding, 401(k) accounts are fully exempt from creditors. Creditors cannot access these funds, regardless of account size.
• Outside Bankruptcy: ERISA generally preempts state law and prohibits creditors from reaching into 401(k)s.
• Exceptions: Certain claims bypass ERISA protection, such as:
  • IRS tax levies
  • Qualified Domestic Relations Orders (QDROs) for child support or spousal maintenance
  • Federal criminal restitution orders

Because of ERISA, 401(k)s are usually considered the "gold standard" of retirement account protection.

2. California State Law on Retirement Accounts

California law (Code of Civil Procedure §704.115) sets its own rules for retirement accounts:

• Private Retirement Plans (like many 401(k)s): These receive broad protection under California law, in addition to ERISA protections.
• IRAs: Treated differently from employer-sponsored plans. They are protected only to the extent necessary for the support of the debtor and their dependents.
• Court Discretion: California courts have wide discretion in deciding how much of an IRA balance is “necessary,” which introduces uncertainty that does not exist with ERISA-qualified 401(k)s.

3. How IRAs Differ From 401(k)s

IRAs are not covered by ERISA (since they are individually established, not employer-sponsored). This difference has major implications:

• Bankruptcy: Under federal bankruptcy law, IRAs have a protection cap. As of 2025, traditional and Roth IRAs are protected up to $1,512,350 (adjusted for inflation) per person. Rollover IRAs (funds that originated in a 401(k)) are generally fully protected.
• Outside Bankruptcy in California: California only protects IRA balances “to the extent necessary for support.” This is not a bright-line rule and can vary case by case.
• Bottom Line: Unlike 401(k)s, IRAs do not automatically carry blanket protection from creditors. The outcome may depend heavily on the judge’s determination of necessity.

4. Federal vs. California Law: Can California Override?

Here’s the important nuance:

• When ERISA applies (most employer-sponsored 401(k)s), federal law controls and California law cannot override those protections. This is due to federal preemption.
• When ERISA does not apply (such as IRAs, solo 401(k)s without employees, or non-qualified plans), California law becomes the default rule. In those cases, protection is limited to what is “necessary for support.”

Put another way: California law cannot strip away protections ERISA guarantees. But if federal law doesn’t apply, California law steps in — and that protection may be weaker.

5. Practical Risks to Retirement Accounts

Even with strong protections, retirement accounts are not absolutely untouchable. Common situations where creditors may still reach funds include:

• Tax liens or IRS levies
• QDROs in divorce or child support cases
• Federal criminal restitution orders
• Fraudulent transfer claims if contributions were made to shield assets from creditors right before litigation or bankruptcy

6. Key Takeaways

• 401(k)s in Bankruptcy: 100% exempt.
• 401(k)s Outside Bankruptcy: Almost always protected by ERISA, unless IRS, divorce, or fraud exceptions apply.
• IRAs in Bankruptcy: Protected up to $1,512,350 (traditional and Roth), with unlimited protection for rollover IRAs.
• IRAs Outside Bankruptcy in California: Only protected to the extent “necessary for support,” leaving room for creditor challenges.
• Always Vulnerable To: IRS, family law obligations, and fraud-based challenges.

In California, your 401(k) is among the most secure assets you own, thanks to federal ERISA protection. IRAs, by contrast, are far more vulnerable outside of bankruptcy, since California law only shields what a court deems “necessary.” The difference underscores why understanding both federal and state rules is critical to effective asset protection planning.