The Optometry Money Podcast Ep. 155: Are Your Retirement Accounts Protected from Lawsuits? A Guide for Optometrists

Evon: [00:00:00] Hey everybody. Welcome back to the Optometry Money Podcast where we’re helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner practitioner, and owner of Optometry Wealth Advisors an independent financial planning firm just for optometrist nationwide.

And thank you so much for listening. Really appreciate your time, your attention today. And today we’re gonna talk about liability protection. And liability protection, specifically around your retirement accounts.

And liability protection is something that optometrists should be thinking about. You have liability exposure of your job, of your profession.

You can be sued directly for your professional work as an optometrist. but also for you practice owners, you have the business liability as well. And so thinking about how to arrange your assets, how to arrange your finances, how to protect [00:01:00] your personal assets from these different risks, is important.

It should be something we think about and we plan around. And today we’re gonna walk through exactly what is protected and what isn’t. And where optometrists are most exposed, specifically around retirement accounts and investment accounts.

Different Layers of Liability Protection for Optometrists

Evon: And there are, if you think about liability, asset protection, when you, when you listen to asset protection attorneys talk about this, there are different layers of protection.

And I’m not an attorney, right? So I’m gonna speak generally about many of these different things. But there’s these, there’s these different layers of protection You can, you can add on one on top of the other.

Layer 1 – Legal Entity Protection (LLCs, Corporations, etc.)

Evon: one of those is entity protection. So for those of you who own practices, you likely own that practice in an LLC or in, in many states of corporation, a professional corporation.

or if you own investment real estate, outside of that, you might own the commercial real estate attached to your practice. You probably own those investment [00:02:00] real estate properties in an LLC or maybe a chain of LLCs, not in your name directly.

Those entities are one example of a layer used for protection. If those separate entities are maintained appropriately, they can help protect your personal assets for risks that show up within those businesses.

It can help keep that liability within those entity bubbles.

Layer 2 – Liabilty Insurance Protection

Evon: the second layer is insurance protection. So you have malpractice insurance for, for that professional risk that you have. Even if you own a practice, you can be personally sued. The practice entity’s not gonna protect you from professional work.

You still can be sued personally for your work as an optometrist. And so. That malpractice insurance steps in and provides protection for that.

And there’s even different types of that malpractice insurance. and then for all of the other personal liability you face. So you know, for slander, getting into a car accident and someone else sues you or someone gets bit by your dog or any other personal liability you can come across, your home and auto [00:03:00] insurance are sort of the first line of defense. So each of those policies have their own liability limits for things related to auto accidents and things related to all other personal liability.but then once those limits are exhausted, umbrella insurance steps in. And so umbrella insurance, this is very often a gap when I talk to families, optometrists about their insurance planning. very, very often, umbrella is missing.

And what umbrella insurance does just very simply, is that it steps in after your home in homeowner’s insurance or after your auto insurance, liability limits are met and it provides that next million dollars of coverage and above.

There’s also business owner liability coverage as well for things related to the business. So you have all these different types of insurance to step in and cover you for liability.

Layer 3 – Titling / Ownership of Assets

Evon: and then another layer is titling.

So how are things owned? By whom, or by what And. We talked about those business entities already. Things can be owned by irrevocable trusts that might provide creditor [00:04:00] protection. But then outside of that, there’s also certain type of joint titling, that provides, that provides different protections in certain states.

And specifically some states allow husband and wife to own assets, both real estate and also potentially investment accounts Jointly as tenants by the entirety, and when you own these assets jointly like that, it means only a creditor of both of you, both spouses can attach those spouses into a judgment.

A creditor of only one of you cannot. So if you think about one of you’s, an OD one, one’s not, that might help protect that asset from the professional liability of only one spouse. So that’s the type of joint ownership, between husband and wife that some states allow, some states only allow it for real estate or real property, and not for other type of personal property, like, like investment accounts or bank accounts, and many states. I, I would guess most states don’t allow it at all.

So how things are owned and titled, is another layer.

Layer 4 – Federal and State Protections

Evon: [00:05:00] and then the last layer to talk about are federal and state productions, federal and state shields, where federal and state law provide exemptions or shields Of different assets from different types of liability.

One example is your primary residence. Different states may exempt, different amounts of equity in your primary residence from different liabilities that can come up. And another example, which is what we’re gonna dive into today, are how federal and state governments handle retirement accounts, and which is extremely important as you are taking cashflow, you’re earning from the practice, you are reinvesting it into these other type of retirement accounts, to help accelerate your progress towards financial dependence and tax planning as well very often.

It it’s important to know how are these assets protected. From the stuff that can come up in life and in business.

How are retirement accounts protected from liability?

Evon: And so let’s dive into how creditor protection works for your retirement and investment accounts. And there’s two different types of liability to think about.

On the one hand is liability from [00:06:00] bankruptcy. Or creditors from bankruptcy, and on the other hand are non bankruptcy liabilities. So everything else, right? Slander, lawsuits from an accident, malpractice, et cetera.

And both of those can be handled separately. They, they may be protected separately depending on the asset.

How are 401(k) and cash balance plans protected from liability under ERISA law?

Evon: So the first group of accounts to think about are, qualified workplace retirement accounts. So 401k accounts, profit sharing accounts, cash balance plans, or the classic defined benefit pension plan.

And those accounts are protected under federal ERISA law. And this is the gold standard of protection From liability for assets, this federal ERISA law is very strong protection. It protects from both bankruptcy as well as other lawsuits, other creditors, other liabilities.

There are some specific exceptions for divorce or tax liens, tax liabilities. Those are outside of the scope of what we’re talking about today, but for everything else, It’s total [00:07:00] protection and its unlimited. So regardless of how much is actually in these accounts. These type of retirement accounts are protected by federal law up to an unlimited dollar amount. so this is extremely strong. For most ODs your 401Ks, your. Among your safest buckets of money from a liability standpoint. And, this is why maxing those 401k accounts isn’t just tax planning. It’s also a form of liability planning as well. You’re not only diversifying the risk across different investments, away from the practice into these other, investments, but you’re also diversifying the liability protection.

Solo-401(k)s don’t have the same ERISA protection

Evon: and importantly. This does not include solo 401k accounts, solo 401k accounts, or individual 401k accounts do not have the same protections from ERISA Law. If the 401k plan only benefits the owner or the owner and a spouse, they are not ERISA plans and they don’t have those ERISA protections.

This is a common misunderstanding. That said, they do have full bankruptcy protection under [00:08:00] federal bankruptcy law. For non bankruptcy liability. Well, it’s based on your state laws, so something to keep in mind. You might be an independent contractor or you might be doing consulting work on the side of your primary work.

if you have one of those solo or individual 401k plans, and there are no employees in the plan, It doesn’t carry that same ERISA protection. Particularly for non bankruptcy liabilities.

How are SEP IRAs and SIMPLE IRAs protected from liability?

Evon: And SEP IRAs and SIMPLE IRAs are treated the same way as well. Although they are employer sponsored retirement plans, they are not ERISA covered retirement plans and they don’t have that same ERISA protection.

From a bankruptcy standpoint though, they are treated the same way as solo 401k plans. Federal bankruptcy law does fully protect them, but it’s from all of that non bankruptcy personal liability, where, where it depends. And it’s entirely state dependent. They are treated just like traditional and Roth IRAs.

Which is another reason why I often talk about [00:09:00] how 401k plans, are at least eventually going to make more sense than SIMPLE IRA plans. I understand 401k plans often have a higher cost, and a little bit more to administer. But that liability protection, that creditor protection is an important part of that too.

So those are employer sponsored retirement plans, obviously ERISA plans 401k plans, cash balance plans, profit sharing.

Those are the most heavily protected. That’s sort of the gold standard of protection here. we also talked about some of these other ones like solo, 401k plans, SIMPLE IRA plans.

How are Traditional and Roth IRAs protected from liability?

Evon: Now let’s talk about Traditional and Roth IRAs. So these accounts are just opened individually in your name.

How are these protected? Well, from a bankruptcy standpoint, federal bankruptcy law protects traditional and Roth IRAs. from bankruptcy up to a dollar amount, and it’s indexed for inflation each year. as of 2025, it was just above 1.7 million, which if you are [00:10:00] only making the regular annual contributions to these accounts, you’re probably gonna be under that for most of your lifetime.

Unless you’re holding a private tech startup that goes to the moon in a Roth IRA, most of our retirement dollars are gonna be starting from 401k plans or SIMPLE IRA plans.

So for IRA dollars where it’s just based on your contributions, you’re probably gonna be under that limit throughout your lifetime. Now, outside of bankruptcy, it’s highly dependent on the state and there is a wide range of outcomes here.

Some states fully protect, others like California have very partial protection. Others may treat traditional IRAs and Roth IRAs differently. So you really need to just look at the laws of your own state And see where your protections or your gaps are when it comes to your traditional and Roth IRAs.

How are 401(k) rollovers protected from liability?

Evon: now what if you roll over a 401k plan into an IRA? because those 401k plans are ERISA protected, how does that impact that? What happens then? from a bankruptcy standpoint, those rolled over dollars will bring over [00:11:00] the full ERISA protection with it from a non bankruptcy standpoint,, it depends on state law. many states do continue to bring over that ERISA protection into the IRA. Others may not really, it’s just gonna be state dependent.

but just some administrative thoughts here. Like if you have a healthy size 401k plan and as you potentially retire or as you switch jobs, for example, And if you’ve concluded looking at your state, that your state’s going to continue those protections. I think it’s best practice to roll over those 401k account dollars into an IRA that only holds 401k rollover dollars. It, it doesn’t commingle it with other IRA dollars from your own contributions. I think it just helps to maintain a clean record of tracking which dollars actually came from the 401k and which ones didn’t.

If you start to commingle it with other IRA dollars from your contributions, then you have to try to track that separately. And I think it’s just much cleaner when you hold [00:12:00] those 401k rollover dollars in a separate IRA just for those rollover dollars.

So traditional and Roth IRAs from your own contributions. It is highly state dependent. And those of you with SIMPLE IRA plans, SEP IRA plans, you want to see what your state’s gonna do with those dollars, from all personal non bankruptcy liability. So we’ve talked about IRAs.

How are other investments protected from liability? Health Savings Accounts and Taxable Investment Accounts?

Evon: What about everything else, your HSAs, health savings accounts, taxable brokerage accounts, taxable investment accounts? Well, it’s just gonna be state specific. And they’re frequently just exposed dollars. taxable investment account. The, the titling, how and who owns it, as we talked about, can impact it. if it’s in an irrevocable trust, or potentially if you own it with your spouse, tenants by the entirety.

in certain states that can add some protection. You know, investment real estate, that’s gonna depend if you hold it in a separate entity that’s maintained appropriately versus held in your personal name. So your ownership can determine some of the risk.

But for the most part, these, and things like bank accounts, you’re going to wanna look at your state laws just to see [00:13:00] how exposed you are.

Because there’s not gonna be specific federal exclusions for those type of investments.

How are 529 plans protected from liability?

Evon: And one last thing I wanna talk about are 529 plans. ’cause there are some nuances here with 529 accounts. They are going to be considered your accounts, you have control over them even though it’s for the benefit of, your child or family member or whoever it is. From a federal bankruptcy standpoint, federal law is gonna exclude some 529 funds from bankruptcy. Depending on the timing of your deposit, so the timing of your contributions.

if you made contributions to the 529 account more than 720 days before filing for bankruptcy there, from my understanding, fully excluded if there are contributions are made between. 365 days and 720 days before filing for bankruptcy, they are excluded up to a specific dollar amount.

And if you made those contributions within the year before filing for bankruptcy, they are not [00:14:00] excluded and potentially reachable as a part of that.

So the bankruptcy side of that depends on when you actually made those deposits. and then everything else is again, state dependent. Each state may have protections for 529 plans as a whole. They may protect their own 529 plans as a whole.

So those are things you’re gonna wanna dig into your state’s rules or talk to an attorney that’s knowledgeable in asset protection, and talk with your own financial advisor about.

Wrap up and next steps optometrists should take to review their liability risk

Evon: So we’ve talked through some of the different protections available to different type of retirement and investment accounts and just different investments as a whole.

so what should we do? Well, for you optometrists, and especially you practice owners, look at your assets. What type of assets do you own? Who or what owns them? How are they owned? what type of insurance coverage do you have? Look at your state’s laws and see what are the risks you’re really looking at? Are you well protected or are you insured well enough?

And then for those retirement accounts, since we talked about those ERISA plans are going to hold the strongest protection. So you probably wanna factor that pretty heavily in terms of which retirement accounts you’re [00:15:00] contributing into first and where you’re holding most of your retirement dollars.

You also wanna be aware of these sort of gotchas or, or misconceptions. So for example, solo 401k plans, and SIMPLE IRA plans. You want to be aware of those gaps, depending on how your state’s gonna handle that liability. and then keep in touch with your professionals.

Keep in touch with a good knowledgeable attorney in asset protection. Keep in touch with your financial advisor and keep in touch with your insurance professional to make sure that you have all of your ducks in a row and you’re not facing risks unnecessarily.

Know, Ultimately just like everything else, just like estate planning for example. We can take steps now to put yourself in a situation that should something come up, there’s a plan in place.

You are as protected as you can be.

And so with that we’ll wrap up. If you have any questions, you can reach out to me at podcast@optometrywealth.com.

And if you have questions, we have answers. You may have seen, we’re doing listener Q&A episodes. If you have questions about anything related to, personal, or practice financial planning and you wanna get those questions answered [00:16:00] on the podcast.

you can head over to OptometryWealth.com/podcastquestion and I’ll throw a link in the show note as well. You can go there, submit your question, and I’ll get to those as soon as I can in the next listener Q&A episodes we do. So with that, we’ll catch you on the next episode. In the meanti