California Private Retirement Plans
— Johnson Fistel, LLP (@JF_LLP) August 7, 2021
One of the best ways to keep assets available for retirement in California is the statutorily authorized Private Retirement Plan (“PRP”), which is entirely exempt from judgments and bankruptcy if properly drafted and used for retirement purposes. Under California law, non-qualified retirement savings plans may be protected if certain requirements are satisfied. According to case law, PRPs must be carefully drafted and maintained to make sure they are in compliance with California’s strict rules and regulations, but they are also highly flexible and can include contributions that substantially exceed the limits under traditional qualified plans. Because they are not qualified, there are no tax deductions is available for PRP contributions, but that can be beneficial because PRPs are not subject to the limits and heavy restrictions under ERISA and IRS codes. The exemption from judgments and creditors for amounts in these plans may be highly valuable in a wide variety of circumstances, including high net worth individuals and high-risk professionals. PRPs can also be used in addition to or in combination with qualified plans.
PRP distributions are also exempt from creditors and judgments, so all of the funds in a PRP are protected both while in the plan and when distributed after retirement. And as long as the funds can be traced as a distribution from the PRP, anything that is purchased with those funds is similarly protected.
Advantages of the California PRP
- California PRPs are exempt from creditor claims and judgments.
- All assets in the PRP are protected from lawsuits and judgment (even in bankruptcy).
- All post-retirement distributions from a PRP, including anything purchased with those distributions, are protected.
- No maximum limit on contributions.
- No requirement for covering all employees of sponsoring company.
- No annual IRS filings or state/federal disclosures.
- A PRP can be used solely or in addition to a qualified plan.
- PRP assets can include a variety of assets that are not protected in a qualified plan, including real estate, vehicles, interests in a business, etc.
- Traditional retirement assets such as investment accounts or related funds can be maintained at any financial institution and can be self-managed.
PRP Warning – A PRP must be operated strictly for retirement purposes and not to defraud creditors or to intentionally avoid the payment of debts or judgments. PRPs must be formed and funded before the assets in the PRP are threatened by litigation or foreclosure. Misuse of the PRP may disqualify its exemption under California law.