Inherited IRA’s Lack Federal Protec...

Author: Wolfe Ossa lawCategories: Elder Law

Retirement accounts are typically afforded protection from creditors, even when someone has filed for bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act. However, the Supreme Court has now held that Inherited IRA’s may not have that same protection.

The Inherited IRA

In the case of Clark v. Rameker the Supreme Court found that an Inherited IRA was not a protected retirement account because the beneficiary was pulling money out prior to retirement age. When an IRA is inherited, the beneficiary is forced to withdraw money if the decedent had been withdrawing before passing. This is mandated by the US Tax Code. In the Clark case, the Clark’s filed for bankruptcy and creditors were allowed access to the IRA Mrs. Clark had inherited.

Typically an IRA holder may not withdraw from the account without penalty prior to reaching a certain age. Because here, Mrs. Clark was withdrawing money prior to that age, the Court found that the account did not qualify as a retirement account. The Court did not consider this a proper use of a retirement account.

If your IRA is Payable on Death (POD) to a loved one, their interests may not be protected. It is extremely important to plan ahead in these cases. Rather than paying the money out directly to your loved one, you would be better off paying out to a trust. This would help to ensure that once you pass away, everything that you’ve worked for isn’t lost.

This is where Wolfe Ossa Law can help. We can design a trust, or trusts that not only protect you here and now, as well as in your future, but also protect your children’s inheritance.

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