I Can’t Get No… “Satisficing?”
I learned about satisficing when getting my Master’s degree in library and information sciences. The term was used to describe how people generally research a topic, particularly using Google search results. In short, research shows that most people (75%) do not go past the first few pages of a Google search. Searchers are ultimately “satisficed” with results that meet initial demands, versus being of optimal quality. In other words, they are good enough.
Instinctively, the perfectionist in me bristles with the concept. Why settle for “good enough”? But the realist in me understands that we don’t always have the time and resources to be so definitive in our choices. This got me thinking about when satisficing a decision is okay, and when you should possibly expend the extra effort.
Whenever I research a client question, I like to make sure I have at least two corroborating sources that support my response. Preferably, one of those sources will be an official source, such as the IRS for tax-related questions. Taking a short-cut when it comes to our clients is not an option. We research and question findings until we get a consensus around the appropriate response. That is our fiduciary duty.
Sometimes, the nature of a question is so complicated or detailed, that we find it hard to provide definitive documentation. This is the case with qualified retirement plan versus IRA creditor protections. In other words, are your retirement assets safe should you be sued for whatever reason?
The law is relatively clear when it comes to bankruptcy but is a bit fuzzier when talking about other creditor protection. Even asking local estate and tax law specialists to weigh in hasn’t resulted in a clear-cut response. Layer in the individual states’ rules, and you are left with a do-no-harm solution, which clearly isn’t ideal.
Here is what we know on the subject of creditor protections for retirement assets, using basic internet research:
- Assets in ERISA retirement plans (401ks, 403bs, etc.) retain full protection from bankruptcy and other creditor attachments while in those plans.
- Contributory IRAs, including Roth and beneficiary IRAs, balances of up to $1,512,350 (in 2024), are protected from bankruptcy.
- Rollover IRAs funded through ERISA plan assets most likely retain their ERISA protections and are excluded from bankruptcy.
- Outside of bankruptcy, creditor protection for IRAs, regardless of funding, may be subject to state limits.
- Trying to figure out what state limits apply is like swimming through mud. Must love reading and interpreting legalese.
Follow up with a member of our professional network yielded a bit more information suggesting that, “Virginia exempts IRAs and Roth IRAs from creditor claims to the same extent permitted by federal bankruptcy law.”1
All of this is to say that, if you ask me about creditor protection for your retirement, I’ll be confident that your 401k plan is safe from creditors (this may not apply in cases involving child or spousal support). But I may not be as sure about your IRAs if they exceed the limits shown above.
When we make recommendations for rolling out of ERISA protected retirement plans, we consider more than just the investment options available, costs, estate planning flexibility. We take the protection of these assets seriously and will continue to make sure that our recommendations reflect our fiduciary responsibility.
Meet Kristan L. Anderson, CEBS®, CFP® »
1Ramsey, Katherine E. (2022, September 29-30). Virginia Asset Protection in the Estate Planning Context [Conference presentation]. Southeast Fellows Institute of The American College of Trust and Estate Counsel, Session 1, Charlotte, North Carolina.
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