A workplace retirement plan like a 401(k) is covered by the Employee Retirement Income Security Act. This federal law generally puts such plans beyond the reach of creditors, the people you owe money to. However, privately owned individual retirement accounts don't fall under ERISA and protect only $1 million from creditors if you go bankrupt. One risk of rolling over a 401(k) into an IRA is that it might make it easier for creditors to grab your money.

Heading to Court

When you don't make the payments on a loan, purchase, taxes or other obligation, the person you owe money to can sue you. If you lose the lawsuit, you may have to pay a levy, a legal seizure of your property to pay your debt. One way a 401(k) can be levied is through an order issued by a state court. A judge can use a court order to award part or all of your 401(k) nest egg to a spouse, ex-spouse, or child or other dependent. Normally, a court order is related to a state's laws regarding alimony, child support or marital property rights. The order must clearly identify the plan, the plan owner, who gets the money and the amount you'll have to cough up.

Paying the Price

ERISA will not protect you if you owe back taxes to the federal government. The Internal Revenue Service can seize and sell any property you own, including the money in your 401(k). The amount levied counts as a taxable withdrawal. However, when the IRS grabs your 401(k) money, it waives the 10 percent early withdrawal penalty on money you take out before age 59 1/2. If you cash out your 401(k) to pay back taxes rather than allowing the IRS to levy the account, you might get stuck paying the 10 percent because the money doesn't qualify for the early withdrawal penalty exception for IRS levies.

Settling the Books

If you owe taxes to the feds, you must fill out Form 433-A so the IRS can figure out how hard they can squeeze. IRS levies must follow guidelines that prevent you from going broke and let you to pay for out-of-pocket health care costs. You enter information on Form 433-A about your personal proper, monthly income and expenses. If you are self-employed, you list your business assets, income and expenses. You include court-ordered payments in your monthly expenses, which means a court order levy trumps an IRS levy. You write down information about your 401(k) and IRA in the investments section of the form.

Rolling It Over

Federal law protects $1 million in your IRA account from creditors if you declare personal bankruptcy. This protection doesn't apply to court orders or IRS levies on your IRA. State courts have different rules on the amount a creditor can levy if you decide not to enter bankruptcy. For example, California courts can tally how much money you and your family need to scrape by and award the rest to your creditors.

In some states, Roth IRAs receive no levy protection from creditors. Normally, you can roll over your 401(k) into an IRA when you retire or otherwise leave your job. Some employers allow you to keep your 401(k) account even after you leave the job, giving you greater creditor protection than what you'll get from an IRA.