The US Supreme Court ruled in Clark v. Rainmaker that inherited IRAs (Individual Retirement Accounts) are not protected from creditor claims under Federal Bankruptcy Law. The Supreme Court reached its decision by finding that inherited IRAs are not “retirement funds” based on three factors:
- Whereas the owner of an IRA can make annual contributions to his/her retirement plan, the beneficiary owner of an inherited IRA cannot.
- Whereas the owner of an IRS does not need to begin taking distributions from the IRA until reaching age 70 ½, the beneficiary of an inherited IRA must begin taking required minimum distributions when the IRA is inherited and cannot defer those distributions until age 70 ½.
- Whereas the owner of an IRA usually must wait until age 59 ½ to take penalty-free distributions, the beneficiary of an inherited IRA can withdraw any and all of the funds at any time and for any reason without penalty.
So what does this case mean to you? For those individuals who are concerned about creditors making claims against family-member beneficiaries, you should consult with your estate planning attorney to make sure that your estate documents are updated to reflect the impact this case may have on you.
If you want to learn more about your personal tax situation, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.