Defined benefit retirement plans, established under IRC Section 412(I), can provide creditor protection as well as income tax deferral. However, there are questions concerning to what extent these IRA accounts are protected from the claims of creditors, which vary from state to state.

A number of attorney’s have stated that these plans are good. One attorney on the west coast stated: "...these plans provide a considerable layer of asset protection..." But other parties also claim that there is a downside to 412(I) plans. This is because plan assets, which primarily consist of life insurance policies and annuities, are oft times illiquid for a number of years.

The question as to whether IRA’s are protected from the claims of creditors, it should be noted that statutes of some states protect only a fraction of assets held in IRA’s. Further, even if the law of a debtor’s state of record protects the entire IRA, there is always the possibility that a judgement could be obtained from another state with a less protective law, which, in the opinion of a judge in a federal district, "....should send a chill up the spine of anybody who thinks that IRA’s provide absolute asset protection."

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