New California Law Puts Retirement Accounts at Risk — What You Can Do

When most people think of “asset protection,” they’re really thinking about two different kinds of protection. The first is creditor or lawsuit exposure—what happens if someone gets a judgment against you in California state court. The second is bankruptcy protection—what happens if you have to file bankruptcy and a trustee reviews your assets.

Retirement accounts have always been a cornerstone of asset protection planning, but recent changes in California law mean that not all retirement accounts are treated the same. In fact, beginning January 1, 2025, a new law—AB 2837—changes how 401(k)s, pensions, and other tax-qualified retirement plans are protected from creditors in California.

This is an important shift because, for decades, Californians have assumed their employer retirement accounts were essentially bulletproof from creditors. That’s no longer the case in California state court.

Let’s break down what has changed, and what it may mean for you.

Bankruptcy vs. State Court: Why It Matters

First, a quick distinction:

·      In bankruptcy, federal law controls. Certain retirement accounts, like 401(k)s and ERISA-qualified plans, are excluded from the bankruptcy estate entirely. IRAs are protected too, but subject to a dollar cap (currently about $1.71 million, adjusted for inflation).  You may have heard that California has “opted out” of the federal bankruptcy exemptions.  That is correct – but my point here is that ERISA protection continues to apply in California bankruptcy. An ERISA-protected 401(k) is “exempt” from bankruptcy in California – and there is no dollar limit.

·      In state court collections, California law applies.  I’m talking about a judgment enforcement proceeding. This means if you’re sued and lose, and the creditor tries to enforce a judgment against your property, the rules of the California Code of Civil Procedure (CCP) decide what’s exempt and what isn’t. That’s where AB 2837 comes in. 

The key point: just because your retirement account is protected in bankruptcy doesn’t mean it’s equally safe if you’re facing a lawsuit in California court – especially after AB 2837.

How Retirement Accounts Were Treated Before AB 2837

Under the old version of CCP § 704.115:

·      401(k)s, pensions, and other tax-qualified employer plans were treated as fully exempt from judgment creditors in California.

·      IRAs (traditional and Roth) were never fully exempt. They were protected only “to the extent necessary for support” in retirement.  In other words, an IRA was, and remains, exempt to the extent the judge determines the IRA is necessary for the debtor’s support in retirement.

What AB 2837 Changed

AB 2837 (effective Jan. 1, 2025) rewrites this balance. The law now extends the “necessity test” to 401(k)s, pensions, and other tax-qualified plans.  AB 2837 essentially places 401(k)s and similar tax-qualified employer plans on the same footing as IRAs – the judge presiding over the judgment enforcement or collections proceeding must determine the extent to which the judgment debtor’s retirement account(s) (401(k) or IRA) are necessary for the debtor’s retirement and, as such, the extent to which they are exempt.

In plain English:

·      401(k)s and other employer retirement plans are no longer automatically exempt in California.

·      Instead, they’re protected only to the extent a court believes the funds are reasonably necessary for your retirement support.

What Hasn’t Changed

·      In bankruptcy, 401(k)s and ERISA plans are still fully protected.

·      IRAs in bankruptcy are still protected up to the federal cap (~$1.71 million as of 2025).

·      Private Retirement Plans (PRPs) (sometimes also called Private Retirement Trusts or PRTs) remain fully, automatically, 100% exempt in state court (and bankruptcy) if structured and maintained properly.

Why the Change Matters

The practical effect of AB 2837 is that California courts now have more discretion to decide what portion of your retirement account is “reasonably necessary.” For high-income earners or those with large balances, this could mean creditors and aggressive creditor attorneys gain leverage they didn’t have before.  Creditors and judgment enforcement attorneys may feel less inclined to settle, too.

Example:

·      A professional in her 50s has $2 million in a 401(k). Under the old law, that account was completely exempt from her judgment creditors.

·      Under AB 2837, a court could decide she reasonably “needs” only $1.2 million. The excess could be exposed to creditors.

Planning in a Post-AB 2837 World

If you’re concerned about protecting your retirement savings, here are a few takeaways:

1. Don’t assume your 401(k) is automatically safe in a California lawsuit.
2. Bankruptcy protection is still strong.
3. Consider asset protection planning early.
4. Consider properly setting up a California Private Retirement Trust.
5. Work with professionals to evaluate your situation.

Conclusion

AB 2837 represents a fundamental shift in California asset protection. Where 401(k)s and pensions were once completely off limits to creditors in state court, they are now subject to the same “necessity for retirement” test that applies to IRAs.

For Californians with meaningful retirement savings, this means asset protection planning requires more nuance. Bankruptcy still offers robust protection, but outside of bankruptcy, creditors now have more room to challenge the safety of retirement funds.

The best time to think about this isn’t when a lawsuit is filed—it’s now “while the coast is clear,” while you have options.

CLICK HERE FOR THE CALIFORNIA ASSET PROTECTION COMPARISON CHART

Frequently Asked Questions About AB 2837 and Retirement Accounts

1. Are 401(k)s still protected from creditors in California?
Before AB 2837, 401(k)s and other employer retirement plans were completely exempt from creditors in California. Starting January 1, 2025, they are only protected to the extent a court finds the funds are “reasonably necessary” for your retirement. That means large balances may no longer be fully shielded in state court.

2. What about IRAs? Are they treated differently?
IRAs have always been subject to the “necessary for retirement” test in California. AB 2837 didn’t change this—but it extended the same rule to 401(k)s and pensions. In bankruptcy, however, traditional and Roth IRAs are protected up to about $1.71 million, and SEP/SIMPLE IRAs are fully protected.

3. Does AB 2837 affect bankruptcy protection for retirement accounts?
No. Federal bankruptcy law still controls what happens in bankruptcy. ERISA-qualified plans like 401(k)s are fully protected, and IRAs remain covered up to the federal cap. AB 2837 only changes what happens in California state court collection actions.

4. What is a Private Retirement Plan (PRP), and are they still protected?
A Private Retirement Plan (PRP) is a special type of retirement trust (irrevocable trust) recognized under California law. If it’s properly structured and genuinely used and maintained for retirement purposes, it remains fully exempt from creditors even after AB 2837. For some people with significant retirement savings or annual income, PRPs may now be an important part of asset protection planning.

5. Should I move my retirement funds to another type of account?
Not necessarily. Every situation is different. The right strategy depends on your age, income, retirement needs, tax objectives, and overall financial picture. Please speak with a qualified attorney and financial advisor before making any changes.  Asset Protection Attorney Ryan J. Casson can consult with his clients’ CPAs, financial advisors, and life insurance agents to work to ensure that a comprehensive, tailored estate plan is in place.

6. What about other states?

California is no friend to debtors – or taxpayers. South Dakota, for instance, does not impose state-level income tax and has excellent asset protection statutes.  Attorney Ryan J. Casson is licensed to practice law in South Dakota and can counsel individuals as to whether incorporating into their estate plan a South Dakota irrevocable trust may assist the individual accomplish their estate planning and tax goals.

To discuss whether your current estate plan continues to align with your estate planning objectives after California’s passage of AB2837, please contact an experienced estate planning / asset protection attorney.