401(k) Creditor Protection in Florida

A 401(k) plan in Florida is protected from creditors under both federal and state law. The federal Employee Retirement Income Security Act shields 401(k) assets through its anti-alienation provision, and Florida Statute 222.21 independently exempts 401(k) balances from creditor claims. This dual-protection framework makes the 401(k) one of the most secure asset categories available to Florida residents.

The protection applies to traditional 401(k) plans, Roth 401(k) plans, and inherited 401(k) accounts. There is no dollar cap on the exemption under either federal or Florida law, meaning the entire account balance is protected regardless of size.

Federal ERISA Protection

Most 401(k) plans are governed by ERISA, which requires that plan assets be held in trust by an independent administrator rather than by the participant directly. The anti-alienation provision under ERISA prohibits any assignment or alienation of plan benefits. Because the plan administrator holds the assets in trust, a creditor with a judgment against a participant cannot reach the funds while they remain in the plan.

ERISA protection is not dependent on state law. A 401(k) plan that meets ERISA requirements is shielded from creditors in every state, regardless of how generous or restrictive the state’s own exemption laws may be. This makes ERISA-qualified plans fundamentally different from IRAs, which depend entirely on state statute for protection outside of bankruptcy.

ERISA protection has limits. It does not shield 401(k) assets from IRS tax levies, qualified domestic relations orders dividing assets in a divorce, or federal criminal fines and restitution orders. Contributions that exceed IRS annual limits may also fall outside the protection if they are not held within the qualified plan structure.

Florida Statute 222.21

Florida provides an independent layer of protection through Section 222.21 of the Florida Statutes. The statute exempts any money or other assets payable to a participant or beneficiary from a fund or account that qualifies under the Internal Revenue Code, including 401(k) plans.

The Florida exemption matters for two reasons. First, it covers plans that ERISA does not reach. Solo 401(k) plans and other owner-only retirement plans may not qualify as ERISA plans because they lack non-owner employees. The Eleventh Circuit confirmed in In re Baker (2009) that Florida’s amended exemption statute protects these plans even without ERISA compliance. A business owner with a solo 401(k) who faces a judgment can rely on Section 222.21 for protection that ERISA may not provide.

Second, the Florida exemption fills the gap that ERISA leaves after distribution. ERISA’s anti-alienation provision applies only while funds remain in the plan. Once a participant takes a distribution, the federal protection ends. Florida Statute 222.21 may continue to protect those funds if they remain traceable to the retirement source, as discussed in the retirement account withdrawals analysis.

Cashing Out a 401(k) and Garnishment

Money inside a 401(k) plan cannot be garnished by a judgment creditor. The question changes once the participant cashes out the account and deposits the proceeds into a personal bank account.

Under ERISA, protection ends at distribution. A creditor cannot intercept the distribution while it is being processed by the plan administrator, but once the funds land in the participant’s bank account, ERISA no longer applies. The creditor can then serve a writ of garnishment on the bank.

Florida’s state exemption under Section 222.21 may continue to protect the distributed funds, but Florida courts have not uniformly agreed on this point. The majority of decisions favor continued protection when the debtor can trace the bank balance to the retirement source, but the split in authority creates uncertainty. A participant who cashes out a 401(k) and deposits the proceeds into a general checking account alongside other income faces the greatest risk.

The safest approach after cashing out is to deposit the proceeds into a segregated bank account that holds only retirement funds. Maintaining clear tracing between the 401(k) distribution and the bank balance preserves the strongest argument for continued exemption. Depositing into a tenancy by the entireties account provides independent protection through the form of ownership for married couples.

401(k) Loans

A 401(k) loan does not remove funds from the plan’s protection. The participant borrows against the account balance, but the remaining balance stays in the plan and remains protected under both ERISA and Section 222.21.

If the participant defaults on the loan, the plan typically offsets the outstanding balance against the account. The offset is treated as a taxable distribution, but it occurs within the plan and does not create a garnishable asset. A creditor cannot reach the loan proceeds while they are being used by the participant, because the loan transaction occurs between the participant and the plan, not between the participant and a third party.

The risk arises if the participant separates from employment while a 401(k) loan is outstanding. The plan may require repayment within a specified period. If the participant cannot repay, the outstanding balance becomes a deemed distribution, creating the same post-distribution protection questions that apply to any other 401(k) withdrawal.

Exceptions to 401(k) Protection

Neither ERISA nor Florida Statute 222.21 provides absolute protection in every circumstance. The principal exceptions apply regardless of which protection the debtor relies on.

Divorce proceedings can divide 401(k) assets through a qualified domestic relations order. A QDRO directs the plan administrator to pay a portion of the participant’s benefit to a former spouse. The exemption does not prevent this division.

The IRS can levy a 401(k) account to collect unpaid federal taxes. The federal tax lien overrides both ERISA’s anti-alienation provision and state exemption statutes. State and local tax authorities do not have the same power.

Federal criminal fines and restitution orders can also reach 401(k) assets. State criminal restitution, by contrast, is generally subject to state exemptions. Contributions that exceed IRS annual limits are not held in the qualified plan structure and may not receive protection under either ERISA or Section 222.21.

401(k) vs. IRA Protection

A 401(k) offers stronger and more reliable creditor protection than an IRA. The comparison matters because participants who leave an employer often face a choice between leaving funds in the 401(k) or rolling them into an IRA.

ERISA-qualified 401(k) plans are protected under federal law in every state, without dollar limits, and without regard to state exemption statutes. IRAs are protected only under state law outside of bankruptcy, and the level of protection varies dramatically across states. In federal bankruptcy, IRAs are subject to an aggregate exemption cap of approximately $1.7 million, while ERISA-qualified plans have no cap.

In Florida, the practical difference is smaller because Section 222.21 provides unlimited protection for both 401(k) plans and IRAs. But a Florida resident who rolls a 401(k) into an IRA and later moves to a state with capped or needs-based IRA protection could lose a portion of the protection that the 401(k) would have provided. Leaving assets in a former employer’s 401(k) plan preserves the stronger federal protection.

Feature	401(k) Plan	IRA
Federal ERISA protection	Yes, unlimited	No
Florida Statute 222.21	Yes, unlimited	Yes, unlimited
Federal bankruptcy cap	None for ERISA plans	~$1.7 million
Protection after distribution	Ends under ERISA; uncertain under FL law	Uncertain under FL law
Divorce division	Yes, via QDRO	Yes, via equitable distribution
IRS tax levy	Yes, can reach funds	Yes, can reach funds

Participants who are weighing a rollover should consider the creditor protection implications alongside the investment and fee considerations. The exemptions available under Florida law are generous for both account types, but the additional ERISA layer for 401(k) plans provides a federal floor that no state legislature can weaken.