UPDATE: The Supreme Court has ruled on this matter. Click here to read more.
Are Inherited IRAs Exempt from Bankruptcy? That is the exact question that will be argued before the United States Supreme Court. Click here to read more. Keep up with the latest on the case by clicking here.
An Inherited IRA is what your retirement account is called in the hands of your named beneficiary (e.g., your child) after you have passed away.
There is no question as to whether retirement assets are exempt in bankruptcy. The question before the Court is whether Congress intended an inherited retirement account to be included in that protection.
During life, your retirement assets are exempt from creditors in bankruptcy up to $1 million. Likewise, if you named your spouse as your beneficiary, your spouse can simply add your IRA to their own account. Neither of these are being questioned before the Court and are generally safe from creditors in bankruptcy (see below for more details).
Some accounts (known as Qualified Retirement Plans) receive even greater protection. These include most retirement plans that you have through your employer like 401(k)’s.
Click here for a detailed review by my colleague, Mike Adams, of whether and to what extent your retirement assets are exempt from creditors. Note the distinction between protection in Bankruptcy and protection from state proceedings through levy, execution, garnishment, attachment and et cetera.