Debtor’s Inherited IRA Not protected

Your client tells you “yes, I also have an IRA retirement account.”   Don’t stop there — ask them “is this your IRA that you created or you inherited from another person (i.e. spouse or parent)?”   If the latter — then be careful!  Inherited IRA’s can be taken by the trustee.  Why?  Because Justice Sotomayor, on behalf of the entire bench, said so in Clark v. Rameker (2014).

In short — inherited IRA’s are not “retirement funds” within the meaning of 522(b)(3)(C) since (1) the debtor may never invest more money in that account since it was not their IRA to begin with, (2) holders of inherited IRA are required to withdraw the money within a short time frame and (3) holders of inherited IRA can withdraw at any time without a penalty.  These characteristics do not jive with typical IRA accounts and therefore not subject to the exemption.  Furthermore, the statue does not say “debtor’s interest” which appears in other parts of 522 but not in 522(b)(3)(C).

So next time a client says “yes I have an IRA”,  your next question should be “is it yours or did you inherit it?”

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