Self directed ira's and lawsuits

[Perry Ivy]

I was recently told by my financial advisor that retirement accounts are lawsuit proof, does the same apply for a self directed account that is invested in real estate, or will the type of investment open you up to litigation?

[Brian Eastman]

@Perry Ivy

Your financial advisor is likely oversimplifying a bit.

A qualified plan like a 401k has very robust protections at the federal level for bankruptcy and other forms of judgments against you personally.

An IRA is insulated against bankruptcy claims up to $1.2M by federal law.

Protection for an IRA in other types of judgments is dependent on state law.

In the reverse direction, if you pursue non-traditional investments such as real estate in an IRA, you want to be concerned about personal exposure from such investments. The courts have ruled that a self directed IRA account held by a custodian does not shield you personally in the event of a claim against the IRA. If you utilize the IRA owned LLC structure, this does insulate you from potential risk associated with investments made in he IRA.