Supreme Court Rules on Inherited IRAs

Supreme Court Rules on Inherited IRAs

JusticeThe U.S. Supreme Court has ruled in Clark v. Rameker that inherited IRAs are not considered “retirement funds” and therefore do not receive the same “retirement funds” federal exemption from creditors during bankruptcy. Inherited IRAs are different than traditional IRAs, and the following differences were clearly described by the Court in this 9-0 unanimous ruling:

1. An inherited IRA owner cannot contribute additional money in the account.
2. An owner is required to withdraw money from the inherited IRA no matter how far he/she is from retirement.
3. The owner may withdraw the entire balance of the inherited IRA at any time (and for any purpose!) without penalty.

Furthermore, the Court’s ruling maintains consistency with the Bankruptcy Code’s exemption provisions by carefully balancing the creditor’s interest in recovering assets with the debtor’s ability to protect essential needs (exempting funds set aside for his/her retirement years).

What can be learned from this decision by the U.S. Supreme Court? Many families have retirement account balances far in excess of the $300,000 in Heidi Clark’s inherited IRA. For those desiring to transfer this type of wealth to children and/or grandchildren, there are now additional reasons to (at least) consider specialized trust planning to further protect these assets upon inheriting. Due to the complex tax treatment (and potential tax pitfalls!) of retirement accounts, families are wise to include an attorney and a wealth planner who are both highly skilled in this area while developing (and monitoring) their estate plans.

Posted: June 18, 2014

Authored by: Terry Prather, CFP®, ChFC®

Direct Phone: 812-602-6307

Email: twprather@paynewealthpartners.com

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The information in this material is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements. The information does not attempt to examine all the facts and circumstances that may be relevant to an individual’s financial needs. Payne Wealth Partners, Inc. is not soliciting any action based on these statements.

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