Inherited IRAs.. Exempt or Non-Exempt From Creditors

In a recent United States Supreme Court decision, Clark v. Rameker, Trustee, the Court determined that inherited IRAs are NOT exempt under federal bankruptcy law. The Court decided that an inherited IRA did not have the same characteristics of a “regular” IRA in that:

(1) The holder of an inherited IRA could never invest additional money in the account.

(2) The holders of an inherited IRA MUST withdraw money from the accounts no matter how far they are from retirement.

(3) The holder of an inherited IRA may withdraw the entire balance of the account at any time and use for any purpose without penalty.

The Court focused on the plain meaning definition of “retirement”. Retirement is “properly understood to mean sums of money set aside for the day an individual stops working.”

While this case is decided under the bankruptcy code, state exemptions are also allowed under the bankruptcy code. Florida Statute 222.21 creates a state exemption for inherited IRAs. It remains to be seen how this bankruptcy case will affect state exemptions, if at all.

ADVICE: Florida law still exempts inherited IRAs under non bankruptcy law and may even allow such exemptions under bankruptcy law. The state in this Supreme Court case did not have a inherited IRA state exemption. Do not get rid of your state protected inherited IRAs yet! If you are considering bankruptcy discuss this case with an experienced bankruptcy attorney.
 
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