Inherited IRAs Are Protected From Creditors

Just to be sure it’s clear, the titles of these blogs are myths.  So in this case, the confusion about creditor protection of Inherited IRAs has been settled by the Supreme Court just this month:  Inherited IRAs do not have creditor protection.  They don’t.

“In Clark, et ux v. Rameker, 573 U. S. ____ (Jun, 12, 2014), the U.S. Supreme Court unanimously held that funds held in inherited IRAs are NOT protected as “retirement funds” within the meaning of Bankruptcy Code Section 522(b)(3)(C) of the federal bankruptcy code.” (Thank you

In a surprisingly sensible decision, the Supremes used these tests to determine that Inherited IRAs do not deserve the protections afforded retirement accounts under IRS code:

Unlike other retirement accounts,  Inherited IRAs have these unique features:

  1. The holder of an inherited IRA may never invest additional money in the account.
  2. Holders of inherited IRAs are required to withdraw money from the accounts, no matter how far they are from retirement.
  3. The holder of an inherited IRA may withdraw the entire balance of the account at anytime—and use it for any purpose—without penalty.

This decision greatly amplifies the importance of careful estate planning for your retirement funds.

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