Bankruptcy and Inherited IRAs

Bankruptcy and Inherited IRAs

Until a few years ago, there was a basic conflict among U.S. courts as to whether inherited retirement assets retain their “retirement funds” status for purposes of bankruptcy creditor protection for the IRA beneficiary after the original owner was out of the picture.

This conflict was ultimately settled by the U.S. Supreme Court. In the case Clark v. Rameker, the Justices unanimously held that beneficiaries of an inherited IRA do NOT have the same creditor protection as an original IRA owner in a bankruptcy proceeding.

The Justices called inherited IRA funds “…a pot of money that can be freely used for current consumption,” and they are not “retirement funds” for purposes of bankruptcy protection.

Is this a big deal for multi-generational planning, should you be concerned? For most people the answer is no – the majority of IRA beneficiaries are not facing bankruptcy. If, however, bankruptcy happens to be a concern for your beneficiaries, your IRA retirement distribution specialist can help and discuss potential options that fit your planning goals.

Source: Clark v. Rameker, 134 S. Ct. 2242

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