In jeopardy: Funds in inherited IRA

Creditors in bankruptcy can reach the debtor’s funds in an inherited IRA, the Supreme Court has ruled.

Resolving a split in the circuits, the high court rejected unanimously the notion that inherited IRAs met the bankruptcy code’s exemption for “retirement funds.”

Agreeing with the 7th U.S. Circuit Court of Appeals, the justices pointed to restrictions on an inherited IRA — in particular, the heir cannot make contributions and penalties apply if money is not withdrawn at least annually — and concluded that its intended purpose is no longer saving for retirement.

According to Misty A. Watson and Samatha Maerz of the Danna McKitrick firm in St. Louis, the new decision “does not leave those wishing to transfer IRAs on their death without options.”

A spouse who inherits an IRAs can “roll it over” into their own IRA or a new one. And IRAs can still be transferred to a trust for the benefit of an individual, instead of to the individual directly, Watson and Maerz note.

The case is Brandon C. Clark et ux., petitioners v. William J. Rameker, trustee, et al., U.S. Supreme Court No. 13-299, decided June 12, 2014.

 

 

 

 

 

 

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