Are Retirement Account Withdrawals Protected from Creditors in Florida?

Retirement accounts in Florida are protected from creditors under Section 222.21 of the Florida Statutes while the funds remain inside the account. The protection becomes uncertain once those funds are withdrawn and deposited into a personal bank account. Florida courts have reached conflicting conclusions on whether retirement distributions retain their exempt status after leaving the plan, making this one of the most unsettled areas of Florida asset protection law.

The answer depends on the type of retirement account, the nature of the withdrawal, and how the debtor handles the distributed funds after receipt.

Why Protection Becomes Uncertain After Withdrawal

Section 222.21 protects money “payable to” a participant or beneficiary from a qualifying retirement plan. The statute does not expressly state whether funds that have already been paid out and deposited elsewhere continue to qualify for the exemption. This statutory silence is what creates the dispute.

Some Florida courts have interpreted the exemption broadly, holding that retirement funds retain their protected character after distribution as long as the debtor can trace the bank account balance back to the exempt source. Other courts have interpreted the statute narrowly, holding that once funds leave the retirement account, they are no longer “payable to” the participant from the plan and the exemption no longer applies.

The majority of Florida decisions favor continued protection when the funds are traceable, but the split in authority means no debtor can rely on post-distribution protection with certainty.

ERISA Plans vs. State-Protected Accounts

The source of protection matters. Employer-sponsored plans that qualify under the Employee Retirement Income Security Act receive federal protection through ERISA’s anti-alienation provision. IRAs and other non-ERISA accounts depend entirely on Florida Statute 222.21 for their protection.

ERISA’s anti-alienation provision applies only while funds remain in the plan. Once a participant takes a distribution from a 401(k) or pension plan, the federal protection ends. The distributed funds land in the participant’s bank account as ordinary cash, and ERISA no longer shields them.

Florida Statute 222.21 may provide a separate basis for protecting those same funds after distribution. The state statute is not limited to ERISA-qualified plans and covers all qualifying retirement accounts. A debtor who loses ERISA protection upon distribution may still assert Florida’s state exemption if the funds remain traceable to the retirement source. This dual-protection framework means that Florida law can fill the gap that ERISA leaves after distribution.

Required vs. Voluntary Distributions

Courts are more likely to extend post-distribution protection to required distributions than to voluntary withdrawals. Required minimum distributions mandated by IRS rules or by a pension plan’s terms are distributions the participant has no choice but to take. Denying the exemption for mandatory distributions would effectively penalize the debtor for complying with tax law.

Voluntary lump-sum withdrawals receive less favorable treatment. A debtor who takes a large discretionary distribution and deposits the funds into a general checking account has more difficulty arguing that the money retains its retirement character. The voluntary nature of the withdrawal, combined with commingling, gives creditors a stronger argument that the debtor has converted retirement funds into ordinary assets.

Periodic distributions that mirror a retirement income stream occupy a middle ground. Regular monthly or quarterly distributions that replace employment income and fund living expenses are more likely to retain protection than a single large withdrawal, particularly when the distributions follow a pattern established before any creditor threat arose.

Tracing and Segregation

The debtor’s ability to trace bank account funds back to a retirement source is the most important practical factor in maintaining post-distribution protection. A debtor who deposits retirement distributions into a dedicated bank account that receives no other income preserves the ability to show that every dollar in the account originated from an exempt source.

Commingling retirement distributions with wages, business income, or other non-exempt funds in a single account undermines tracing. A creditor who serves a writ of garnishment on a bank account containing both exempt and non-exempt funds can argue that the debtor cannot identify which dollars are protected. The debtor is still entitled to a hearing to claim the exemption, but the burden of proof is harder to meet when funds are mixed.

Transferring retirement distributions through multiple accounts further degrades the tracing chain. A debtor who withdraws funds from an IRA, deposits them into a checking account, and then moves the money to a different savings account at another institution creates additional steps that a creditor can challenge. Each transfer weakens the link between the bank balance and the original exempt source.

The strongest post-distribution strategy is straightforward. Open a separate bank account that receives only retirement distributions. Do not deposit any other income into that account. Do not transfer funds from that account to other accounts. Maintain records showing that every deposit corresponds to a distribution from a qualifying retirement plan.

The Annuity Distinction

Annuity withdrawals receive clearer protection than retirement account distributions under Florida law. Section 222.14 of the Florida Statutes protects annuities and expressly extends the protection to annuity “proceeds.” Florida courts have interpreted this language to cover annuity distributions even after they are deposited into a bank account.

The retirement account statute, Section 222.21, does not contain equivalent “proceeds” language. This textual difference is one reason courts have struggled with the question of post-distribution protection for IRAs and 401(k) plans. The annuity statute answered the question explicitly; the retirement account statute did not.

For debtors concerned about post-distribution vulnerability, converting retirement distributions into an annuity contract may provide a more secure basis for protection. The annuity itself would be protected under Section 222.14, and distributions from the annuity would be protected as annuity proceeds. This approach adds a step and involves costs, but it resolves the statutory ambiguity that retirement distributions face.

Depositing Into Protected Accounts

Even if retirement distributions lose their exempt status under Section 222.21 after deposit, the funds can still be protected if they are deposited into an account that is independently shielded from creditors.

A tenancy by the entireties bank account held jointly by married spouses is protected from creditors holding a judgment against only one spouse. Depositing retirement distributions into a properly structured TBE account provides protection through the form of account ownership rather than the source of the funds. This strategy works regardless of whether the retirement exemption continues after distribution.

A bank account at an institution that cannot be reached by a Florida garnishment order offers another layer of protection. The practical effectiveness of retirement distribution protection depends as much on where the money is held after withdrawal as on whether the statutory exemption technically survives.

Planning Implications

Retirees and other individuals who depend on retirement account distributions for living expenses face a specific creditor risk that people with funds still inside their accounts do not. The gap between clear in-plan protection and uncertain post-distribution protection requires deliberate planning.

Segregation is the foundation. Every retirement distribution should flow into an account that holds nothing else. Annuity conversions provide a statutory backstop for debtors who want certainty. Married debtors should consider routing distributions through TBE accounts. Debtors facing active creditor claims should minimize voluntary withdrawals and take only required distributions until the claim is resolved.

The exemptions available under Florida law are generous, but they require attention to the details of how funds are handled after they leave the protected account.