Is Your IRA Protected from Lawsuits in Texas?

Yes — in Texas, your IRA is protected from lawsuits by private creditors, and the protection has no dollar cap. Under Texas Property Code § 42.0021, money held in a Traditional, Roth, SEP, or SIMPLE IRA is exempt from attachment, execution, and seizure to satisfy a civil judgment. A creditor who wins a breach-of-contract case, a personal injury verdict, or almost any other private lawsuit against you cannot force money out of the account. The shield does have edges, though: it weakens the moment funds leave the IRA, and a small set of creditors (the IRS, federal criminal courts, and a divorcing spouse) can reach in regardless of what state law says.

What the Texas Exemption Actually Covers

Texas Property Code § 42.0021 designates a broad category of retirement savings as “qualified savings plans” and puts them beyond the reach of judgment creditors. The statute covers Traditional IRAs, Roth IRAs, SEP plans, SIMPLE plans, and self-employed retirement plans, along with any annuity purchased with distributions from those accounts.¹ Whether your balance is $50,000 or $5 million, the entire amount is exempt. Contributions, growth, and dividends all sit inside the protection.

The exemption reaches your right to receive payments as well as the assets in the account, whether your interest is vested or not. That means a creditor cannot place a lien on the IRA, garnish money still inside it, or compel a liquidation. Texas is one of the friendliest states in the country for debtors on this point, and the unlimited cap is the reason.

One narrow gap: excess contributions. If you put more into your IRA than Internal Revenue Code § 4973 allows in a given year, the excess amount and any earnings on it are not exempt.¹ Staying inside the annual limit is an asset-protection question, not just a tax question.

The 60-Day Clock After a Withdrawal

The unlimited protection applies while the money is inside the IRA. Once you take a distribution, a much shorter clock starts. Section 42.0021(e) protects distributed funds from creditor seizure for only 60 days after the distribution date.² After day 60, the money is fair game for any judgment creditor who can locate it.

There is one exception. If the distribution qualifies as a rollover contribution under the Internal Revenue Code and you complete the rollover within the allowed timeframe, the funds keep their exempt status.² A lump-sum payment that lands in your checking account and sits there past 60 days loses its protected status entirely. If a creditor has a judgment against you, the timing of any withdrawal matters enormously.

Inherited IRAs

Federal and Texas law diverge sharply on inherited IRAs. In Clark v. Rameker (2014), the U.S. Supreme Court held unanimously that inherited IRAs are not “retirement funds” for federal bankruptcy purposes, because the beneficiary cannot make new contributions and must take required distributions regardless of age.³

Texas went the other way. The Property Code specifically lists inherited IRAs and inherited Roth IRAs as exempt qualified savings plans, and the inherited interest is exempt to the same extent the original owner’s interest was exempt on the date of death.¹ If your parent left you a $400,000 Traditional IRA, those funds carry the same creditor protection you would have if you had built the balance yourself.

What Happens If You File for Bankruptcy in Texas

Texas has opted out of the federal bankruptcy exemption system, so a Texas filer uses state exemptions rather than the ones listed in 11 U.S.C. § 522(d). For IRA holders, that works in your favor. The federal exemption caps combined Traditional and Roth IRA balances at $1,711,975 (as adjusted for inflation effective April 2025), while the Texas exemption is unlimited.⁴ Your full balance is protected in a Texas bankruptcy, just as it is in a regular civil lawsuit.

The federal cap only becomes relevant if you move to another state and a court there applies its exemption scheme. Even then, funds rolled over from a 401(k) or other employer plan into your IRA keep the unlimited protection they had inside the original plan, and earnings on those rollover funds are protected as well.⁴

Creditors Who Can Still Reach Your IRA

State exemption law cannot override federal authority or family-law authority. Three creditors operate outside the shield.

The IRS

The Internal Revenue Service can levy your retirement accounts for unpaid federal taxes. A federal tax lien attaches to all of your property, and the IRS has specific statutory authority to seize IRA funds to satisfy the debt.⁵ Federal authority takes precedence over Texas exemption law. The IRS typically pursues other assets first and must follow internal procedures before levying retirement funds, but the underlying power is absolute.

Federal Criminal Restitution

If you owe criminal restitution under federal law, the government can garnish retirement accounts to collect. The Mandatory Victims Restitution Act allows enforcement against “all property or rights to property” of a defendant, and its “notwithstanding any other Federal law” language has been read to override ERISA protections and state exemptions.

Divorce

A Texas divorce court can order division of your IRA as part of the property settlement. The mechanism is a court-ordered transfer incident to divorce under Internal Revenue Code § 408(d)(6), not a Qualified Domestic Relations Order. QDROs apply to employer-sponsored plans like 401(k)s and pensions, not to IRAs. The distinction matters for tax reasons discussed below.⁶

Don’t Try to Hide Money in an IRA at the Last Minute

You cannot dump assets into an IRA once a lawsuit is looming and expect the exemption to hold. Texas follows the Uniform Fraudulent Transfer Act (Business & Commerce Code, Chapter 24), which lets creditors unwind transfers made to dodge a debt. The look-back period for intentional fraud runs four years from the date of the transfer, or one year after the creditor discovered or reasonably should have discovered it, whichever is later.⁷

Courts look at what are sometimes called “badges of fraud” to gauge intent. The most common red flags are:

Timing that suggests the transfer was a reaction to a debt, threat, or lawsuit
Moving substantially all of your available assets in a single stroke
Insolvency at the time of the transfer or shortly after
Concealment or secrecy around the transaction

No single factor decides the question, but a court that sees several together can reverse the contribution and expose those funds to creditors.⁷ Consistent, long-term contributions look nothing like a last-minute dump, and courts treat them very differently.

The Tax Bill When a Creditor Does Reach Your IRA

If one of the exceptions above pulls money out of the account, the tax hit lands on you. The IRS treats a levy or court-ordered distribution as a taxable event. The full amount withdrawn is included in your gross income for the year at ordinary rates, and if you are younger than 59½, you generally owe an additional 10% early-distribution penalty.⁶

The penalty exception that applies to QDRO distributions from employer plans does not apply to IRAs. Even if a divorce court orders money out, you face the full penalty unless a separate exception (disability, substantially equal periodic payments) applies. The safe route in divorce is a direct trustee-to-trustee transfer of the IRA into the former spouse’s name, which avoids income tax and the penalty. Anyone in a Texas divorce should insist the decree specifies a direct transfer rather than a distribute-and-pay arrangement.

1
State of Texas. Texas Property Code Chapter 42 – Personal Property
2
State of Texas. Texas Property Code Chapter 42 – Personal Property
3
Justia U.S. Supreme Court Center. Clark v. Rameker, 573 U.S. 122 (2014)
4
Office of the Law Revision Counsel. 11 USC 522 – Exemptions
5
Taxpayer Advocate Service. Levy/Seizure of Assets
6
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals)
7
State of Texas. Texas Business and Commerce Code Chapter 24 – Uniform Fraudulent Transfer Act