Self-Directed IRA owners need to be aware of the U.S. Supreme Court decision that held that an inherited IRA is not a retirement fund and therefore doesn't qualify for bankruptcy protection. To review the entire case, reference case Clark ET UX. versus Rameker, Trustee, ET Al number 13-299.
Even with this ruling, it is important for people to know that normally, retirement funds are protected from creditors even if they file for bankruptcy, with a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, and defined benefit plans. This U.S. Supreme Court decision removes this protection from inherited IRAs.
Another important fact to keep in mind is that despite the ruling, debtors can elect to use state exemptions to protect assets from creditors in North Carolina, Arizona, Alaska, Florida, Idaho, Missouri, Texas, Ohio and Idaho.
This court decision is one that everyone needs to keep in mind when working on their financial plans. Individuals should consult with their professionals (including their CPAs and Attorneys) when making decisions that might put their inherited IRA in jeopardy. Those professionals can discuss the best way to protect the funds. In fact, it would be a good idea for everyone that inherits an IRA to have a planning meeting with their professionals at the time of inheritance.
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