Are Inherited IRAs Protected From Creditors?

Most people who file for bankruptcy automatically think of their Individual Retirement Account (IRA) and 401(k) accounts as the most common type of assets that are exempt from being lost in bankruptcy and kept safe from creditors. As a result, many people believe that they will be allowed to exit the bankruptcy process with their retirement accounts untouched, which will greatly facilitate making a fresh start. The answer, however, is much more complicated if an IRA is inherited. If a person inherits the IRA from a spouse, however, the IRA will not qualify as exempt from bankruptcy and as a result will subject to collection efforts from creditors. In 2014, the Supreme Court issued a ruling in the case of Clark v. Rameker that an inherited IRA someone other than a spouse is not classified as a bankruptcy exemption. In drawing the distinctions between inherited IRAs and participant owned IRAs, the court noted three differences - the beneficiary of an inherited IRA cannot make additional contributions to the account but a participant IRA, an inherited IRA beneficiary must take required minimum distributions from the account but an IRA owner can defer distribution until the age of 70 and ½, and     Read More