Clients frequently ask whether a so-called inherited IRA is exempt from their creditors. An inherited IRA is one you receive from say the death of a parent, rather than one to which you contribute your own funds. Unlike a traditional IRA, the inherited IRA must begin distributions to the current owner within a year of the original owner’s death. And the current owner cannot add any more funds to it.
How well inherited IRAs can be protected will soon be decided by the United States Supreme Court. The Supreme Court said it would hear an appeal from the United States Court of Appeals for the Seventh Circuit – – which essentially gave creditors the ability to go after money in IRAs that are inherited by people who have not retired yet.
According to my review of the U.S. Supreme Court docket, the case of Clark v. Rameker, (Case No. 13-299) is currently set for argument on Monday, March 24, 2014. At some point following that argument, the Supreme Court will hopefully provide specific guidance on how funds in inherited IRAs can (or cannot) be protected from creditors.