inherited IRA's Archives - FREE CONSULTATION

Congress May End Tax Benefits on Inherited IRA’s in the New Year

Posted on December 30, 2016by Admin

Retirement accounts may soon be taking a major hit from the IRS, if Congress decides to change the rules on a tax strategy involving inherited IRAs.

Under the current rules, people who contribute to an IRA and do not end up needing the money for retirement are able to pass the account to their heirs. The money is then allowed to keep growing tax-deferred throughout the heir’s lifetime, with minimal taxes due on withdrawals.

However, the Senate Committee on Finance voted 26-0 to put an end to the ability to stretch an IRA across generations, putting trillions of dollars of legacy wealth in danger of being taxed.

Second to the home, retirement accounts are a household’s greatest source of wealth. Individuals who inherited traditional IRAs have been able to profit from one of the biggest benefits of the tax code, allowing the tax-deferred balance to continue compounding for years. The ability to transfer that wealth to second and third generations will be put in jeopardy with this legislation.

The proposed legislation comes after the Supreme Court ruled unanimously that inherited IRAs are not “retirement funds” under the bankruptcy code and are not entitled to exemption from a debtor’s bankruptcy estate.

The proposed law does not apply to surviving spouses. Surviving spouses may either roll the money over into another retirement account or spread the taxes due on the account across their lifespan.

The proposed rule would not affect Roth IRAs because taxes on those accounts have already been paid with after-tax income by the account owner. Taxes on traditional IRAs are deferred until the account owner begins making withdrawals to cover living expenses during retirement. Heirs are required to continue making annual withdrawals from the inherited account and pay taxes on those withdrawals. The new rule would dramatically speed up the pace of those withdrawals.

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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 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.

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

Does Florida Law Protect Inherited IRA’s?

Posted on February 8, 2016by Admin

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.

Click here to read more on this story.

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.

Bankruptcy Law, Timothy Kingcade Posts

Are Inherited IRA’s protected in Bankruptcy?

Posted on June 16, 2014by Admin

The U.S. Supreme Court recently answered this question. In an opinion written by Justice Sonia Sotomayor the Court found that Heidi Heffron-Clark, who inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later, could not protect the account from her creditors.

The court’s analysis in Clark v. Rameker ruled that there were key legal distinctions between inherited IRAs and those you set up for yourself through annual contributions or company plans. The fact that inheritors cannot put additional funds into the inherited IRA account and the beneficiary can withdrawal money at any time without incurring a penalty make these inherited IRA accounts unique and “suggest that they are not retirement assets,” the court notes.

Another key distinction: Non-spousal IRA heirs must either withdraw the entire account balance within five years of the original owner’s death, or take out a minimum amount each year, starting December 31st the year after the IRA owner died.

The Supreme Court’s decision does not affect bankruptcy protection for retirement accounts of your own, which were expanded by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The decision does have important ramifications for spouses. A spouse who inherits their husband or wife’s IRA has an option not available to other inheritors. The surviving spouse can roll the assets into his or her own IRA and postpone distributions from a traditional IRA until they turn 70½. However, there is a catch to this. Just like other IRA owners they may have to pay a 10% early-withdrawal penalty if the money is taken out before age 59½ from the surviving spouse’s own IRA.

If you have any questions on this topic or are in a 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.