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Individual Retirement Accounts

Wednesday, September 3, 2014

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

On June 12, 2014, the U.S. Supreme Court - in a unanimous decision - ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.


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