You've probably heard all the usual, good reasons to save in an employer-sponsored plan: good tax advantages, convenience, and the possibility of your employer matching your contributions. Well, here is another – less discussed – reason to use an employer-sponsored retirement plan. Saving in retirement accounts can help and protect you in ways you might not expect.

You probably don't plan to be sued or to file bankruptcy. But you might be glad to know that your retirement savings may be protected if that happens.

"Most employer retirement plans have been protected from creditors and in bankruptcy since the Employee Retirement Income Security Act (ERISA) was passed in 1974," says Karen Chan, a Certified Financial Planner and educator with University of Illinois Extension. "Also, the amount in employer retirement plans that can be protected from bankruptcy is unlimited.But the law does not apply to IRAs, leaving them vulnerable unless state laws provided protection."

Enter the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law gave IRAs protection in bankruptcy in all states, up to the amount of $1 million. Note, however, that it provides no protection from creditors until you file bankruptcy. So, money in your employer plan is somewhat more secure.

Did you roll over money from a former employer's retirement plan into an IRA? The new law has good news for you too. "That rollover is protected in its entirety, along with the investment returns attributable to it," says Chan. "Employer plans and rollovers from them are not subject to the $1 million limit that applies to IRAs."

The rule isn't quite so clear, however, if you've rolled the money that was originally from your employer into one IRA, and then into another IRA. If bankruptcy is a possibility in your near future, you might want to hold off on the rollovers until this gets tested in court. "And keep a good paper trail in the meantime," Chan advises, "so that you can clearly track the employer retirement plan money from one account to the other."

The rules for SIMPLE and SEP IRAs are slightly different. These plans, although they are a type of IRA, are not subject to the $1 million protection limit. But they may not keep that additional protection if you roll them into a regular IRA.

Now you know another good reason to use employer-sponsored retirement plans to protect your financial security. Learn more about how to save and invest for retirement at Plan Well, Retire Well, University of Illinois Extension's award-winning website: www.RetireWell.uiuc.edu. Use the site's interactive tools to see how fast your money will grow, figure out how much you need to save, and learn how to choose investments for your retirement plans.

Source: Karen Chan, Extension Educator, Consumer and Family Economics, chank@uiuc.edu