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I inherited an IRA from a family member, can I protect it in bankruptcy?

Posted on Jun 30, 2014 in Bankruptcy Information

Starting an Individual Retirement Account, or IRA, is pretty easy. You can call a financial adviser, or even do it online. You can avoid paying tax on the money when you contribute it (in a traditional IRA) or when you withdraw it (in a Roth IRA).

IRAs are usually well-protected in bankruptcy, subject to some rules about when they were first funded and how recently. For instance, if you file for bankruptcy tomorrow, and last week you transferred $50,000 into the IRA, you may have problems. Talk to a bankruptcy lawyer before you transfer any assets and to determine when if at all you may plan to file a bankruptcy in the future.

The good news as we mentioned is that IRAs are broadly protected. The bad news is that a recent decision of the US Supreme Court tells courts that you cannot exempt an IRA you inherited from someone else (like a parent) through the traditional exemptions that protect your assets from creditors.

The case that decided it, called Clark v. Rameker, came out of Wisconsin. The courts had a difficult time balancing what retirement and tax laws said versus what the bankruptcy laws say. There wasn’t a clear cut answer. But the Supreme Court has decided. So unless Congress (or the state legislatures) change the exemptions, we need to know if the IRA you may have was one you started or if you inherited it. That way we can best advise you.

If you’re contemplating a bankruptcy and have a retirement account, don’t be surprised if we ask you for more details. The more information we have, the better we can assist you. Please call us at Lakelaw (847-249-9100 in Illinois, 262-694-7300 in Wisconsin) or visit our website at to arrange a free consultation and discuss what assets can be protected from creditors in bankruptcy.


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