Inherited IRA/Bankruptcy

Technical topics regarding tax preparation.
#1
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The Supremes today ruled that an inherited IRA is not safe from creditors in Bankruptcy (Clark vs. Ramaker)
 

#2
Rupert  
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#3
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This issue has bounced around for a long time.

I see the court's logic, but then again, I don't. If the court is going to specifically remove an enumerated asset (i.e. an IRA) from the list of protected assets because the IRA was "inherited" on the grounds that it doesn't represent an asset held for the debtor's own retirement, then, I ask, "Why can't a taxpayer argue that his regular Bank Account balance IS his retirement fund?"

I mean, fair is fair.

What if, for example, an employee taxpayer has a nominal pension - yet, he's an active participant nonetheless, so he can't make a deductible IRA contribution, so he decides to fund his retirement using a regular, after-tax retail brokerage account. Whose to say that this regular account isn't a "retirement" account?

Or, what if you inherit an IRA, so you simply say to yourself, "Now that I have an IRA, I don't need to do any additional tax qualified retirement savings on my own. I just use a retail account."

I know, I know what you guys will say, "No way, Chris! That retail brokerage account isn't listed in Sections 401, 403, 408, etc. that provide bankruptcy protection. Yes, it is a retirement account, Chris, but it cannot be protected because it is not listed in one of those Code Sections."

My point is that an IRA is listed...and if the court is allowed to remove things from a list, why shouldn't a debtor be able to add things to the list?

The SC's decision is basically a one way losing street for debtors. That is, things can be removed from protection if either (1) they are not retirement funds or (2) they are not listed in one of those code sections. So, there's 2 ways to lose if you're a debtor. But there's only one way to win if your a debtor: If the amount is for retirement AND if it is held in an account enumerated in one of those code sections.

As such, I find the separating of the "retirement funds" language from the numerical Code Sections listed in the same provision as a bunch of <bleep> legal parsing.

That's just my feeling on the matter. I don't have a dog in the fight, but if I did, it would likely be on the creditor's side.
 


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