In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted to protect Individual Retirement Accounts or IRA’s from being seized by bankruptcy courts. Most states’ bankruptcy courts allowed inherited IRA’s to be protected from seizure as well, until a 2014 ruling by the Supreme Court.
The 2014 case of Clark v. Rameker set a precedent when the Supreme Court ruled that federal law does not protect inherited IRA’s because the holder of the IRA cannot invest new money into the account; can withdraw the entire balance at any time and use the funds for any reason without penalty; and must take required distributions from the account no matter how far the holder is from retirement.
In addition, the ruling also means that inherited 401(k)s are not protected in bankruptcy court. IRA’s have a $1.2 million cap on the protected amount, however 401(k)s do not have a limit on account balances that are protected.
There are some circumstances where inherited IRA’s may be protected to an extent. Each state is allowed to establish individual exemptions. Florida is one of seven states where all IRA’s are considered a bankruptcy exemption. Under Florida Statute 222.21, IRAs and Roth IRAs are completely protected by debtors in bankruptcy court. Another exception in most states is if a living spouse is the beneficiary of the IRA, they are allowed to treat it as their own in bankruptcy court and it is therefore, exempt.
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If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.