Are Your Retirement Savings Protected from Lawsuits?
You have liability exposure as an optometrist. Unfortunately, it's a part of the gig - you can be personally sued for your professional work. If you own a practice, you have business liability on top of that. And then there’s all the everyday personal stuff — car accidents, someone getting hurt on your property, you name it.
So, here's a question on my mind for families I serve: if something goes wrong, how protected are the retirement accounts you’ve been building for years?
There are generally two categories of legal or creditor risks we're concerned about:
- Bankruptcy
- All other legal liability
The answer depends entirely on the type of account. And there are some common misconceptions worth clearing up.
The Gold Standard: ERISA-Protected Plans
If you have a 401(k), profit sharing plan, or cash balance plan with employees in the plan, those accounts are protected under federal ERISA law. This is the strongest protection available for your retirement dollars — it covers both bankruptcy and non-bankruptcy lawsuits, and there’s no dollar limit.
That means your 401(k) is among the safest buckets of money you have from a liability standpoint. And it’s why maxing those contributions is both a tax strategy and a liability strategy too.
The Misconception: Solo 401(k)s
Here’s where a lot of ODs get tripped up. If your 401(k) plan only covers you (or you and your spouse), it’s not an ERISA plan. Solo 401(k)s don’t carry that same federal protection.
You may use this if you have consulting work or may be a sublease without employees.
They are fully protected from bankruptcy under federal law. But for everything else — malpractice, personal lawsuits, other creditor claims — you’re relying on your state’s laws. And that’s a very different level of certainty.
SEP IRAs and SIMPLE IRAs fall into this same category. They’re employer-sponsored plans, but they’re not "ERISA-covered" and don't get protection from that particular law.
So the non-bankruptcy protection is entirely state-dependent. It’s one more reason why upgrading from a SIMPLE IRA to a full 401(k) plan often makes sense as your practice grows — the liability protection alone is worth factoring in.
Traditional and Roth IRAs
For bankruptcy, federal law protects your IRAs up to about $1.7 million (as of 2025, adjusted for inflation). If you’ve only been making regular annual contributions, you’re likely well under that for most of your career.
Outside of bankruptcy? It’s all over the map depending on your state. Some states fully protect IRAs. Others — like California — offer only partial protection. Some even treat traditional and Roth IRAs differently. You really need to know what your state does here.
One practical tip: if you roll over a 401(k) into an IRA, it's often best practice keep those rollover dollars in their own IRA if you've built up large IRA accounts with your own contributions. It's simply better record-keeping.
Most states will carry over the ERISA protection for those rollover dollars, but only if you can clearly identify which dollars came from the 401(k). Commingling makes that much harder to track.
Everything Else
HSAs, taxable brokerage accounts, bank accounts — these generally don’t have specific federal protections. They’re largely exposed, heavily reliant on state laws. You’ll want to check your state’s laws to understand the risk.
529 plans have some nuance. Federal law excludes contributions made more than 720 days before a bankruptcy filing. Contributions made within a year of filing? Those could be fair game. Beyond bankruptcy, it’s state-dependent again.
What Should You Do?
Take a look at your full picture - your retirement accounts are only a part of your financial picture. What accounts do you have? How are they titled? Where is your income coming from? What insurance coverage do you carry — and is umbrella insurance part of that? (It’s one of the most common gaps I see.)
Factor liability protection into your retirement account decisions. ERISA-covered plans should carry extra weight. Be aware of the gaps in solo 401(k)s and SIMPLE IRAs. And stay in touch with a knowledgeable attorney, your financial advisor, and your insurance professional.
You can’t predict what might come up. But you can put yourself in a much better position when something does.
For the full breakdown, check out Episode 155 of the Optometry Money Podcast (link below👇).
And if you have questions, reach out anytime (or just respond to this email).
Have a great weekend!
Evon Mendrin, CFP®, CSLP®
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